The importance of a good charity investment policy statement

22 October 2020

Paul Stevens, Senior Portfolio Manager, discusses why a charity’s investment policy statement is more than just a box-ticking exercise and how it can play an important role in managing your charity’s money effectively while demonstrating good governance.
Having an investment policy statement is a requirement of The Charity Commission, but you would be surprised how many charities either don’t have one or don’t keep it up to date. Thanks to the current pandemic crisis, charities’ finances have never been under so much pressure, and it is vital that your investment policy statement reflects the true needs of your charity. Not only will it protect you as a trustee and give you peace of mind that you can show you have operated in the best interests of the charity, but it will also help you exercise care and skill when making investment decisions.
Ultimately, the responsibility of the investment policy statement lies with the trustees, but companies like Sanlam can guide and consult on each of the elements that must be covered.
A good investment policy statement will include the following:

  1. The charity’s aims and objectives

You should clearly set out the charity’s investment aims and objectives. In other words, why are you investing the charity’s money, what do you need it to achieve, and by when? As part of that, you should also consider any ongoing costs and liabilities that need to be met and account for the impact of inflation on those commitments. It is all part of setting the scene of how the charity operates in the ‘real world’, and it provides a set of targets to which the charity’s assets can be managed.

  1. Accessibility requirements

You should detail how much money you need to be able to access in the short term (perhaps to pay bursaries or fund charity work) and how much you can afford to leave in longer-term investments. This will include how much cash you hold in the bank for immediate and emergency access.

  1. Attitude to risk

It’s necessary to take some investment risk if you want the charity’s assets to grow. But there are different levels of risk you can take to achieve the right level of reward. An investment specialist can help you find the right balance between risk and reward for the charity while helping you put your own personal circumstances to one side. As part of that, they can also help you quantify the potential downside of investing and determine the charity’s capacity to take risk.

  1. Investing with a conscience

As we discussed in our “Does your strategy reflect your ethical values?” article, you can avoid investing in particular companies or sectors, and you can choose to actively invest in companies that support your values. You could, for example, invest in alternative and renewable energy, education, environmental protection, health care and companies with fair working practices. You can support businesses that show synergies with the charity’s values without undermining the potential investment returns. There are so many more investment options available to trustees nowadays, and an investment professional can help you navigate your preferences.

  1. Governance

It’s important to specify who has been involved in making the charity’s investment decisions and how they are made – for example, by committee or with one person having ultimate responsibility. You should also include details of any financial professionals you have used and the role they play in selecting and managing the investments. Trustees should not feel tied to a particular investment manager, and the investment policy statement should reflect that. Indeed, as part of good governance, you should consider making provision for a periodic review and re-tendering of any investment professionals you use.

  1. How will success be measured?

Finally, you should also detail how the performance of your investments will be measured. You can document the reporting requirements for professional investment managers so you are clear when and how they will keep you up to date with the performance of your fund(s). A useful way of comparing investment performance is to use the independent ARC Charities Indices which enable you to compare the performance of your funds with that of their wider peer group.

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Appoint an expert

Taking responsibility for a charity’s investments is a big responsibility and can be overwhelming for someone who is not an expert. The Charity Commission strongly recommends you consider appointing an investment professional, unless there is a very good reason why you can manage it yourself.
Sanlam’s team of ethical investment specialists has over 20 years’ experience and can offer you all the support you need in setting your investment objectives, writing your policy statement and, ultimately, meeting your investment goals. Once your portfolio is in place, we will be there to support your ongoing investment decisions and ensure your plans remain on track while always adhering to your values and attitude to risk.
For more information on your investment responsibilities, please read the Government’s guide for trustees.

Paul Stevens
Senior Portfolio Manager

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