In a new series, readers ask our new columnist, Nicola Barber, a series of questions relating to investment and trusteeship.

Nicola has over 35 years of investment experience, including working as an independent trustee for a UK family trust and a trustee director for the pension scheme of the Citizens Advice Bureau. She joined James Hambro & Partners in early 2012 and is an experienced equity investor and portfolio manager specialising in managing portfolios for larger and more complex clients. Nicola chairs the firm’s Corporate Social Responsibility (CSR) and Responsible Investment Committees which are integral to the firm’s culture and management of client portfolios respectively. She supports charities through dedicated trustee training and writes and presents widely. Nicola is an active member of the CFA Institute.
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Question: "I'm a trustee of a small charity and have little knowledge of investment but would like to understand more to help the board. Where should I start?“

Answer: Your question implies that you may wish to make a balanced and adequately informed decision about exercising your powers as trustees to use investments to further your charitable purposes.

There is no statutory definition of investment although in common law it is generally limited to financial investments. A good starting point is to understand the investment powers within your governing document (if any) and the Trustee Act 2000. Maximising financial return consistent with prudence is a fiduciary duty for trustees. Consideration of issues such investment suitability, diversification, discretion to exclude investments, periodic reviews and taking advice are also important factors.

The types of investments range from more traditional asset classes, or groups of securities, such as bonds or fixed interest securities, equities (shares in companies) and cash, to more esoteric holdings such as hedge funds, commercial property, commodities, private equity and other derivative strategies. Social investments can take a variety of forms. In isolation, each asset class has different risk and return characteristics, but also within each type of asset class i.e. equities, there are potentially highly differentiated investment outcomes depending on the nature of the underlying investment. All financial investments involve an element of risk.

There are several good websites to help understand each asset class, type of investment and style of investing. I would suggest a search against any of the largest investment management firms.

The good news is that trustees can delegate responsibility for the oversight of their assets to an investment manager who will assess the suitability of the investments to their needs. Do remember that appointing an investment manager does not absolve trustees from their statutory duties.

Once it has been decided to use investments, it is important to have a written investment policy statement. This applies to foundations, operational and endowed charities to cash only investors. Not only does this detail a list of objectives and provides transparency for all stakeholders, it is essential to demonstrate good governance. Policies are different for each charity but typically document its background/legal status, overall risk and return expectations, capacity for loss, permitted investments, time horizons, spending commitments, income requirements and/or capital growth, benchmarks, consideration of inflation, and ethical/responsible investment criteria.

Executed well, your desire to understand investments plays perfectly into several of the six main duties of trustees’ – furthering your purpose, acting in its best interests, managing resources responsibly, and ensuring accountability through written documentation of the decision-making process.

This article should not be construed or relied on as advice.

Resources
- Charity Commission – CC14 – support and guidance www.charitycommission.gov.uk
- Charity Investors Group guide from March 2012 www.charityinvestorsgroup.org.uk
- CAF Investment Knowledge Centre www.cafonline.org/investments

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