Review of charity investment managers is paramount

Ccla management blog investment

Kirsty Lister stresses the importance of charities making the right investment decisions 

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21st August 2019 by TFN Guest 1 Comment

As some charity trustees have found to their horror, investing funds into the wrong areas can tarnish their organisation’s reputation and impact on their ability to generate donations and other sources of funding.

Comic Relief was forced to perform an embarrassing and public U-turn over its investment policy when a BBC Panorama programme aired in December 2013 revealed that the charity’s portfolio included shares in arms, tobacco and alcohol companies. Meanwhile, earlier this summer the National Trust for England, Wales and Northern Ireland announced it was withdrawing from fossil fuel investments. This move came after a national newspaper investigation, published in November 2018, found the charity’s £1bn portfolio included around £45m worth of fossil fuel equities despite the National Trust’s warnings about the damaging impact of climate change.

These incidents should serve as warning to all charity trustees as they are often the ones responsible for investing significant sums on behalf of their organisations. The Charities and Trustee Investment (Scotland) Act 2005 imposes obligations that trustees for Scottish organisations must adhere to when investing funds. These include a duty to assess the suitability of proposed investments, the need for diversification and, where appropriate, a requirement to take qualified advice before investing and when reviewing investments.

Kirsty Lister

Kirsty Lister

To help further clarify the trustees’ responsibilities in this area, OSCR also published ‘Charity Investments: Guidance and Good Practice’ in November 2018. It underlines the duty for trustees to act with care and diligence to ensure investments are in the interests of the charity and don’t run contrary to its aims.  The OSCR guidance also highlights how those lacking the skills and competency to manage an investment portfolio should seek professional support.

A good investment manager should add value by reviewing a charity’s portfolio on a regular basis, putting the organisation’s objectives and reputation to the forefront of this process. It is, however, important (and a requirement under the Act) that trustees keep any arrangement with their investment manager under review.

Even if they are happy with the current service they receive from an investment manager, it is important to ensure their performance is sufficiently benchmarked and evaluated. A regular and independent third party review which looks at core areas such as asset research capabilities, risk management, allocation decisions and the charges of an investment manager is therefore essential. It should also consider if the environmental, social and governance funds within a charity’s portfolio are suitably in line with its ethos.

The investment manager review helps trustees assess their existing arrangement and, if necessary, consider whether they should tender for the services of a new provider. In this event, further support should be provided by the service reviewer to take them through the full tendering procedure. 

A good investment manager can help a charity make sound investment decisions. It is however essential that their service is monitored and reviewed to ensure high standards are maintained. Trustees need to implement regular reviews to help insulate their organisation from a potential PR crisis which can prove highly damaging and extremely costly.

Kirsty Lister is financial planning associate and charities adviser at Chiene + Tait Financial Planning

30th August 2019 by Lok Yue

Rather strange that 'Arms' are on the list of 'no touch' investments. I thought defence and national security was a fundamental responsibility of national governments