Are we clear about what we want our investments to do for us?

Whether you’re choosing between existing charity investment funds or asking a portfolio manager to select investments for you, it’s critical that you know what your priorities are. Are you looking for inflation-beating returns to give you a useful income stream every year and capital growth over the long term? Or is this a savings pot that you’ll spend in a few years’ time? These are very different financial tasks. There’s no great mystery about what sort of portfolio will do the job you’re looking for, but you need to be explicit about what that job is.

Is the portfolio behaving as we expected?

If you have been clear about your objectives and the portfolio is a reasonable match for those, there shouldn’t be any nasty surprises. If you really can’t afford any risk to your capital (because you’re planning to spend it) then you can’t expect to get much income from it. Conversely, long term investors can expect a decent annual income and capital growth over time, but that growth won’t come at an even pace – it’s normal to see the portfolio value fall back sometimes.

Are we addressing any reputational risk?

There’s no need to spend hours philosophising over what’s ‘ethical’ and what’s not. It should be pretty obvious if investing in certain industries would leave your organisation at risk of reputational damage. And if that’s the case, there will be plenty of other charities in the same position, so there will already be funds you can invest in that are a sensible match for both your financial and ethical needs.

Are we accessing investments at reasonable cost?

Professional expertise costs money, but you don’t want to pay over the odds or to pay for things you don’t need. The lowest cost route to a managed portfolio will usually be through an existing charity specialist pooled fund such as a common investment fund. If instead you want to pay a portfolio manager to put together a ‘segregated’ portfolio specifically for your charity, you’ll need to take into account the cost of any funds they select as well as the manager’s own annual charge. A segregated approach comes with extra complexity and administration as well as extra costs, so be prepared to explain why you need these.

What are our responsibilities as trustees?

As a trustee you’re already expected to be honest, diligent and use your common sense. (That’s not quite how OSCR puts it https://www.oscr.org.uk/guidance-and-forms/guidance-and-good-practice-for-charity-trustees/charity-trustee-duties but that’s the gist.)

The same principles apply when it comes to your charity’s investments. You are also required to have regard to whether the investments are ‘suitable’, and appropriately diversified (meaning that you have a good spread of assets rather than all your eggs in one basket). Unless you are able and willing to run such a portfolio yourselves, you’ll be expected to call on the skills of an investment firm or adviser.

There’s lots more detail in the Charity Commission’s guidance https://www.gov.uk/government/publications/charities-and-investment-matters-a-guide-for-trustees-cc14 and elsewhere. But in essence, if you are addressing the five questions here, there’s no need to be nervous when it comes to investments.