Finance: Commission says prudence is best

Charities should be cautious when investing their funds, despite greater leeway to choose different assets, according to guidance from the Charity Commission.

The new publication, Investment of Charitable Funds, Basic Principles, puts the case for professionalism in investment, with investment decisions reviewed on a regular basis.

"In the past, the concept of investing charities' funds in any way that presented a risk was considered inappropriate, unless the charity had explicit power to do so," said the commission's senior lawyer James Dutton.

"But times change. Generally, charities can now invest their funds in a much wider range of investments, but they have to remember that markets can go down as well as up."

The document strongly recommends that trustees adopt a formal investment policy and review it annually. The policy should cover the resources needed to carry out the charity's activities, the acceptable level of risk, and the charity's stance on ethical investment.

On the latter, trustees are advised that they can avoid investments that conflict with their charity's aims. They can exclude investments that alienate beneficiaries or supporters, but this must not cause significant financial detriment.

Charities must also have diversified investments, which the commission says will reduce the risk of losses.

KEY POINTS

- Charities now have greater investment leeway than ever before

- To spread risk, they are advised to diversify by investing in different asset classes

- Ethical investment is encouraged, but charity trustees are also reminded of their duty to maximise returns from investments

- All charities should have a formal investment policy and they should review it at least every year.

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