Finance: Outlook - Regular investment reviews are vital

Knowing what you want from your portfolios, and when, is crucial, writes Clive Paine.

UK charities have more than £40bn of investment assets, with over 50 per cent in equities - and the largest charities have an even greater exposure to equities.

However, with charities facing rising costs and greater demands being placed on them, many are now more reliant than ever before on the performance of their investments to help them meet their income and funding objectives.

With this in mind, it is imperative that organisations regularly review their investment portfolios to ensure they reflect their risk profiles, and that they are realistic in terms of providing the returns needed.

When reviewing their investments, there are a number of areas that charities need to consider.

First, they need to have clear agreement on what they want to achieve from their investments and over what period of time. They should have clearly defined goals for the short, medium and long terms. Many charities rely on the returns from their investments to provide more than half of their annual income. However, as well as ensuring that their asset allocation strategies meet their income needs, they also need to satisfy their capital preservation requirements.

Charities need to be sure they understand the risk profile and exposure of their investment portfolios. Too many are over-exposed on the equity markets and their investments are not sufficiently diversified.

With the decline in equity markets at the turn of the millennium, many charities saw a dramatic fall in the value of their assets.

They also need to ensure their portfolios are ethical and in tune with their underlying philosophy.

Last, they should ask themselves if their investment charges are fair, clear and transparent. With so much invested in equities, unit trusts and common investment funds, as well as securities and interest-bearing loans, charges can have a major impact on performance - especially in a market that is providing low returns.

As well as ensuring that their portfolios are in tune with their objectives, charities also need to make sure they have appropriate advisers who can help them meet all their investment requirements and provide a regular and comprehensive analysis of their portfolios. In addition to this, they must be able to provide a flexible proposition and a realistic benchmark.

Sadly, many charities have under-performing portfolios that could be transformed by comprehensive reviews conducted on a regular basis.

However, before doing this, they need to ensure they have a robust and clear procedure to follow.

- Clive Paine is business development director, charities, at Scottish Widows Investment Partnership.

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