Nobody really understands economics, the comedian and writer Ben Elton once said. It just happens to you, like being mugged. Investment can seem even more complex, so those responsible for it might not even know if they're being mugged.
This poses a dilemma for trustees - the people responsible for the stewardship of charitable funds that sometimes total millions of pounds. Most of them are not investment experts, yet they have a legal duty to ensure their charities' investments meet the needs of beneficiaries and achieve the best possible financial performance.
Some charities have responded by setting up specialist investment committees as sub-committees of the main trustee board. Proponents say that investment committees, which include outside investment experts, trustees interested in investment and senior managers, such as the finance director, can enhance scrutiny of a charity's investments. But others argue that excluding most trustees from decisions on investment leads to worse investment decisions.
Les Jones, a charity consultant and former finance director of WWF-UK, sits on the newly formed investment committee of the Wildfowl & Wetlands Trust. The committee, which will meet twice a year, was set up after the trust received a £9m legacy over two years in 2009 and 2010 that needed investing.
Jones says that investment committees are particularly useful for charities with funds large enough to invest in individual companies, rather than just pooled funds. "Then I think you have to go through the portfolio in some detail," he says. "You can challenge the managers more and do so face to face - and it's not that formal because there aren't so many of you." An investment committee can also ensure investments do not contravene ethical policies.
Jones says investment committees should possess someone with knowledge of the City - a retired investment manager, for instance. However, he says they also need people who are intimately aware of the charity's needs: they should know how much income the charity requires and whether its needs are likely to be met by investing in higher-risk, but potentially more lucrative equities, or lower-risk bonds.
"Investment managers can't help you with that; you've got to have a feel for it," he says. "And if you have only investment experts on the committee, you are not going to have it."
Julie Toben, a fundraising consultant, is chairman of Cats Protection's investment committee, which was set up six years ago to handle non-cash investments. It comprises three investment advisers, one a former investment manager, three trustees and the charity's chief executive, director of services and head of finance. The charity has £24m invested and the committee meets fund managers four times a year.
"We are there to ensure our investment strategy is adhered to by our investment managers," says Toben.
The committee ensures the charity's asset allocation - the proportion of investments held in cash, bonds or equities - meets the needs of Cats Protection's strategic plan and reserves policy. The committee has delegated authority to make changes in the allocation. If significant changes are required, it issues recommendations to the board for approval.
Toben likens the investment committee's role to that of finance or audit committees, which are sub-committees of the main trustee board set up to deal with specific issues.
"Once investment gets to a certain level, it becomes too complicated and time-consuming for the full board," she says. "The expertise of a structured and focused sub-committee that can work entirely on that one issue, and then report back to the board, is needed."
But investment committees do not meet with universal approval. Heather Lamont, client investment manager with the investment firm CCLA, says specialist investment committees can lead to worse decisions. "I'm not able to think of an investment committee that has actually improved the governance of investment decision-making," she says.
Investment committees usually bring in external experts, she says, who seek to justify their existence by buying and selling investments more than necessary. "I think there is a significant risk of making decisions that aren't helpful and of overreacting to short-term conditions rather than sticking to a strategy," she says. "And the more you trade, the more costs you incur."
Lamont also believes that specialist investment committees exclude the majority of trustees from thinking investment has anything to do with them. Investment, she says, is the collective responsibility of trustees, and it is advantageous for charities to have decisions made by trustees who are not investment experts.
"If the investment manager can't get across to the trustees what the strategy is, there is something wrong," she adds.