Mark Morford Product Manager, Private Clients and Investments Mark Hodkinson Client Relations Manager (Charities) CAF Financial Solutions Ltd November 2013 Feel confident in your investment decisions A robust approach to constructing an investment policy

Agenda  What is an investment policy?  What can trustees invest in?  Who is the investment policy for?  Who needs an investment policy?  Where do we start?  What is required of trustees?  What is included in the investment policy?  Determining objectives  What risks should you consider when making investments?  Liquidity requirements and time horizon  Ethical considerations  The effect of restrictions  Summary  Useful links/resources

What is an investment policy?  Clear direction for the trustees about exactly what the charity is trying to achieve  Different for each charity, depending on aims, operating model, timescales and resources  Sets out in writing the investment objectives are and how it intends to achieve them

What can trustees invest in?  Interest bearing cash deposits in bank or building society accounts  Shares in a listed company (listed equities)  Interest bearing loans to a company or the government (bonds or gilts)  Common investment funds and other collective investment schemes  Non traded equity in private companies  Commodities  Derivatives

Who is the investment policy for?  Trustees/employees  Investment advisers/managers  Beneficiaries/donors  Charity Commission

Who needs an investment policy? Everyone!  Foundation/grant-maker  Operational charity  Endowed charity (or an endowment within a charity)  Cash-only investors

Where do we start? The Charity Commission guidance – CC14  Sits alongside other guidelines:  Charity Reporting and Accounting - CC15b  Internal Financial Controls - CC8  Provides support for trustees  Does not seek to restrict the remit of trustees to invest  Demonstrates how much freedom trustees have

What is required of trustees?  Obtain the best financial return  Within the level of risk considered to be acceptable  Generate return to be spent on the charity’s aims In order to act within the law trustees must:  Know, and act within, their charity’s power to invest  Exercise care and skill  Select the right investments  Take advice  Review investments  Explain their policy in the trustees annual report

What is included in the investment policy?  Scope  Objectives  Attitude to risk  Amount available  Timing of returns  Liquidity needs  Types of investments  Decision makers  Key performance indicators  Reporting requirements  Responsibility and remit of the investment manager  Investment manager’s principles

Determining objectives  Amount of permanent endowments/designated or restricted funds  Total amount  Specific or general liquidity needs  Need for income and growth/income or growth/retain capital value?  Governing document  How can investment decisions be made?

Determining objectives Investment objectives  Targets and timeframe?  Absolute return or beating inflation?  Capital growth and income generation?  Total return approach?  Performance benchmark?  Performance monitoring/finance committee meetings? Investment objectives may differ between types of charities

What risks should you consider when making investments?  Capital and volatility  Diversification  Restrictions  Liquidity  Counterparty/credit  Ratings  Inflation; interest rates; currency; regulatory governance  Valuation; environmental; social; governance  Doing nothing

Liquidity requirements and time horizon Liquidity  Naturally occurring  Draw down  Regularity  Access  Limits Time Horizon  Short/medium or long term  Long term financial plans

Ethical considerations  Ethical investment policy  Negative screening  Positive screening  Pooled funds/direct assets

The effect of restrictions  Good to exclude ‘undesirable’ stocks  Beware of unintended implications  FTSE 100 shares only  Gilts only  40% fixed interest/60% UK stock market

The effect of restrictions  Can restrict performance of investment managers  What happens if you allow more flexibility?  Opportunity cost  Could produce a negative effect on returns  More risk could be acceptable for potentially greater returns  Future of the investment landscape

Summary  A written policy provides a foundation for good governance  Relevant to multiple audiences  CC14 is useful guidance  Regular review is key

Useful links/resources Charity Commission website  Charity Investors Group guide from March 2012  CAF Investment Knowledge Centre 

Important information Not all investments are suitable for all investors, so it’s important to take advice from an appropriately authorised independent financial adviser before contemplating any course of action. The value of investments, and any income derived from them, may go down as well as up and you may not get back the amount invested. Past performance is not a reliable indicator of future results. CAF Financial Solutions Limited (CFSL) is a subsidiary of Charities Aid Foundation (CAF). It is licensed to market and promote regulated savings and investment products to customers of CAF and its subsidiaries. CFSL is able to provide information and customer support in relation to the products it promotes but is not authorised to provide investment advice. CAF Financial Solutions Ltd, 25 Kings Hill Avenue, Kings Hill, West Malling, Kent, ME19 4TA. Company registration number – registered in England and Wales. CAF Financial Solutions Ltd is authorised and regulated by the Financial Conduct Authority (FRN 18940).