A well thought-out investment policy is essential to achieving your charity’s goals and demonstrating that trustees have fulfilled their duty of care.
Why does a charity need an investment policy?
A written investment policy, also known as a WIP or a Statement of Investment Principles, provides a framework for your charity’s investment decisions, helping trustees to manage the charity’s resources effectively and demonstrating good governance.
The trustees are always responsible for setting investment policy, deciding whether to delegate decision-making and reviewing performance measurement.
An investment policy is considered good practice in Scotland (and Northern Ireland), and is a legal requirement of the Trustee Act 2000 for charities registered in England and Wales.
What areas need to be addressed when creating a charity investment policy?
Objectives and investment powers
You should provide enough background information to the investment manager so that they can easily identify your charity’s mission, beneficiaries, structure, type of charity and your financial objectives. This needs to be carefully considered and documented. Any restrictions on the investment powers of the charity (for example, imposed by its constitution or donors) should also be documented explicitly, to remove ambiguity.
Time horizon and risk
Your policy needs to set out the time horizon over which your portfolio will be invested, how much risk the trustees are prepared to take and how these risks will be mitigated. Risk is strongly linked to time horizon. Risk will also mean different things to different people, so it’s essential trustees and their investment manager have a strong understanding of what each means by risk.
Portfolio constraints and restrictions
Your charity’s investment policy should specify permitted asset classes, restrictions on investment types or ethical considerations, base currency and tax considerations. Many charities now have an ethical investment policy.
Strategic asset allocation, benchmarking and targets
Asset allocation is the single biggest factor in determining both risk and reward. It’s therefore vital to agree a strategic asset allocation that will allow the charity to reach its long-term financial objectives.
Performance and reporting
Trustees must assess the performance of their investments and decide what reporting they require, for example quarterly valuations and annual investment reports.
How often should a charity review its investment policy?
Your charity’s investment policy is a living document and should be reviewed at least annually or when any significant changes occur within the charity to ensure it remains fit for purpose.
Checklist for establishing a charity investment policy
- Consider appointing a sub-committee to advise the full board of trustees
- Make sure investment objectives are workable and achievable
- Document the rationale behind decisions for future generations of trustees
- Keep it short and relevant
- Consider having a separate responsible investment policy if your restrictions or ESG preferences are particularly complex
- Get your investment manager to agree, sign and date your policy
- Review at least annually or when your charity’s circumstances change
Evelyn Partners can help you with your Investment Policy. Please feel free to get in touch with me at keith.burdon@evelyn.com
Important Information
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. The value of investments can go down as well as up and investors may not get back the amount invested. Past performance is not a guide to future performance.
Issued by Evelyn Partners Investment Management Services Limited, authorised and regulated by the Financial Conduct Authority
