Barclays Charity Fund

In the five-year existence of the Barclays Charity Fund, which looks to provide long-term charity investors with a sustainable level of income through investment in a diversified portfolio of assets, our discussions with clients have changed enormously. Transparency and accountability have always been the foundations of a good investment relationship, and in recent years these have taken increasing priority in charities’ conversations with us.

To be a charity trustee is to take on a significant responsibility, as the accountability of everyone to their donors and funders is absolutely paramount.

As we talk to charities about their investment needs, these are the five key trends we continue to see.

1. Greater awareness and accountability

If you’re a trustee for a charity, you’ll also have the responsibility of oversight over the charity’s finances, balancing the short and medium-term needs of the people who benefit from the charity with the long-term viability of the organisation.

A clear investment policy is an important tool for trustees that face scrutiny on why they are investing and their approach to investing. It will usually include objectives, attitude to risk, liquidity requirements, ethical considerations and demonstrate that trustees have considered the relevant issues, taken advice where appropriate and reached a reasonable decision.

2. Reputational risk

Trustees have become increasingly sensitive to the dangers posed by reputational risk across all aspects of their charity’s operations. Managing investments is one of these sensitive areas and the Charity Commission has issued guidance for trustees to help them manage their responsibilities in this area.

Trustees now better recognise how their investment strategy can impact their charity’s reputation and the risks that can arise from investing in more controversial areas. In response, we increasingly see trustees looking to mitigate these risks through better alignment of their investment strategy and their broader charitable objectives.

3. The total return conundrum

Many charities have naturally adopted income-bias investment strategies and the income generated is a critical contributor to their short-term spending plans. This is especially true in the current climate when funding is so challenging. Meanwhile, other charities’ circumstances may allow for a more balanced approach within their investment strategy.

There’s no straightforward answer to the question of whether an income or total return based strategy is ‘better’ – the solution is for trustees to identify which is more appropriate for their specific charity. Short, medium and longer term requirements have to be clearly identified and matched with the reserves that are available to trustees. Thereafter, the right selection of funds and investments, agreed over a course of discussions with professional advisers, can be structured to potentially provide the right balance of income and growth for the charity.

4. Understanding and managing investment risk

The Charity Commission recognises the purpose of a financial investment is to deliver an attractive return, for an acceptable level of risk, which thereafter supports trustees in furthering their charity’s goals.

The complexity of investments can make understanding an acceptable level of risk a real challenge for trustees. While the broad principles of risk reduction through investment diversification have become more widely understood, trustees have to get better educated around the potential risks associated with their investment choices.

5. The need for strong relationships

Charities and their advisers need to invest the time to get to know and understand each other. Understanding the charity’s mission, vision and values is absolutely vital to creating the right investment strategy, and maintaining the right level of service. Advisers need to be able to explain their investment strategy; they need to demonstrate they have the resources to manage the strategy; and they need to maintain a continuous and open conversation with trustees about the needs of the charity.

These five trends have involved us in some deep and fundamentally important conversations about the role of charities, their governance and their responsibilities to their fundraisers and donors.

And perhaps most rewarding for those of us who advise charities on their investments, the conversation always returns to the frontline beneficiaries of the charity – the people for whom we are all working to make a difference.

Investments can fall in value as well as rise. You may get back less than you invested.

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