Investing your charity's money for the first time

Key takeaways

• Before investing, trustees should understand the Charity Commission's CC14 guidance and ensure investment decisions are properly considered, documented and made in the charity's best interests.
• Clear investment objectives, including risk tolerance, income needs, liquidity requirements and long-term goals, provide the foundation for an effective investment strategy.
• Investing is an ongoing process. Regular reviews of both portfolio performance and investment managers help ensure assets continue to support the charity's mission and objectives.

Investing funds for the first time marks a significant milestone for charities. The organisation has built up reserves and the trustees are considering whether those funds could work harder to support the charity's mission. Yet this step often brings with it a host of questions and concerns. So, understanding the process within which charities can invest is essential.

Here are the most significant steps:

Research the rules & regulations

When investing for a financial return, trustees have to comply with certain legal requirements as covered by the Charity Commission’s guidance on investment matters, known as CC14. In simple terms, it recognises that charities invest to achieve the best financial return for an acceptable level of risk. Trustees should ensure that details of their investment approach and key decisions are recorded in writing. This will enable them to demonstrate that they have considered the relevant issues, taken advice if appropriate, and reached a reasonable and justified decision.

Understand the risk

Investing for a financial return does not come without risk. A lack of understanding of investment risk can be a major barrier for some charities. Investment risk needs to be clearly understood within the context of the charity and its activities. Your attitude to the different types of investment risk will determine your investment approach so you must be satisfied with the level of risk you have considered to be appropriate for your charity.

Set your Objectives

Your charity’s investment needs and requirements should be the starting point for setting clear objectives and shaping an appropriate investment strategy. This means looking carefully at both your immediate operational needs and your longer-term ambitions. A charity that needs to draw regular income to fund ongoing programmes will have very different requirements from one building an endowment to support future activities. When setting your objectives, you should take into consideration: your sources of income; your mission; your timescale; your income and liquidity priorities; your full asset base and the risk tolerance of your board.

Write your investment policy

A clearly written Statement of Investment Policy sets out what your objectives are and how you intend to achieve them. You need a policy that is right for your charity’s objectives, your situation and your goals. Some charities will automatically know what to put into the statement, but it is common for elements of the policy to still be unknown before approaching an investment manager. Charities should ensure they know their basic priorities such as time horizon, income or withdrawal requirements and any responsible investment requirements or restrictions before an approach is made.

Understand your responsibilities

Trustees face certain challenges when developing the responsible investment element of their policy. Trustees are required to act honestly, reasonably and responsibly in forming an appropriate policy that is in the best interests of the charity and its purposes. Trustees need to pay particular attention to the Charity Commission’s guidance that has a recommended approach to responsible investing.

Choose an investment manager

Your investment objectives and requirements can affect your choice of manager. There is a wide range of choice, and trustees should consider a variety of firms. Most charities will undertake a tendering process and you should feel satisfied that an investment manager can accommodate a specific investment policy. Consider the level of service and whether the manager is providing investment advice or not. You should feel at ease with the organisation you entrust with your assets. Trust is the foundation on which you build a relationship and good, clear communication is a vital part of this.

Organise a tendering process

Charities will typically ask a longlist of investment managers to submit a proposal, before meeting with a shortlist who will present their proposition. For the presentation stage, ensure that investment managers know if there are any specific topics you want them to cover in their presentation and if there is a time limit. The majority of charities provide investment managers with specific questions.

Regularly review & reflect

You must review your portfolio and performance regularly. This includes how your manager is doing against your investment objective and the service agreement you have with them. Most managers will provide quarterly reports and meet with your board of trustees at least annually. Reporting meetings are your opportunity to review your manager against the objective and to engage with your manager, ensuring that you inform them of any changes.

 W1M has been managing charity assets for over thirty years and we have learnt a lot about working with charities to develop their investment strategies. We offer our clients a dedicated charity team, extensive investment experience, a personal service and a transparent charging structure.

Glossary

CC14: The Charity Commission's guidance on investment matters. It helps trustees understand their responsibilities when investing charity funds and making investment decisions.

Investment risk: The possibility that an investment may not perform as expected or may lose value. Trustees should understand the level of risk that is appropriate for their charity.

Investment objectives: The goals a charity wants its investments to achieve. These may include generating income, preserving capital, supporting future activities or growing assets over time.

Statement of investment policy: A written document that sets out a charity's investment objectives and how it intends to achieve them. It provides a framework for investment decisions and oversight.

Investment Manager: A professional firm or individual appointed to manage a charity's investments in line with its objectives, requirements and investment policy.