Expert View: Investment - Make time for your investment policy

Paul Palmer is professor of voluntary sector management at Cass Business School.

A prominent feature of the Sorp is its focus on requirements for policy statements and narrative reports. It goes beyond numbers and accounts, in that it requires charity trustees to report on both their stewardship and management of the charity.

Among the requirements for charities are the need for a reserves policy, a risk register and - for those charities that hold investments - an investment policy.

Research to date suggests that most charities have begun to address the question of reserves, although most remain 'under-reserved'. The risk statement has also improved and moved on from the assumption that it was something to do with insurance.

Yet there are still too many charity reports that appear to have been written by external auditors themselves, rather than together with trustees who have understood the risks facing the charity. As a result, each week there is a story about a charity facing a funding crisis or a governance problem, usually because the organisation lacks the appropriate risk policies and the grounded methodology that should underpin them.

The same bad practices outlined above are also occurring with investment policies. Many are inadequate, and it often appears that only investment managers are responsible for writing them. The investment manager should be consulted, of course, but investment policies are the sole responsibility of the trustees.

Just before Easter I was invited by Petra Ingram, finance director at Sightsavers International, to help create the charity's investment policy.

Sightsavers is an example of best practice in formulating and writing an investment policy. First, it had an honest risk register already in place. Second, there was a clear reserves policy in place. And third, trustees and senior staff, including the chief executive, were willing to devote a day of their time to investment issues for the charity, using the previous risk and reserves work as their starting point.

The day involved breakouts and open debate covering appropriate social responsibility criteria and stakeholders' concerns. The need to hold an appropriate level of reserves was correlated to the risks identified, including issues of funding sources and both contractual and moral spending commitments. Once the policy had been agreed, the investment managers were able to suggest an appropriate strategic asset allocation.

The charity now has a transparent and grounded investment policy in place.

 - Paul Palmer is professor of voluntary sector management at Cass Business School.

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