Deciding on asset allocation for a charity is a process full of choices. In my teaching, I have found that a good way to look at a subject is through a case study. Chris Evans, the honorary treasurer of The Rowans Hospice, and Paul Mitchell, charity director at UBS bank, have allowed me to tell the story of Rowans Hospice's investment journey from single to multi-assets.
Rowans Hospice in Hampshire serves adults through a 19-bed hospice and daycare services, and has an income of £3.3m. In 2004, the hospice had £1.5m in liquid assets. It had also been given a bond in Enron, the US firm, which was not under its control, and Enron had gone bust. So the trustees were averse to risk.
Chris realised that the hospice needed a better return on its assets and sought advice from Paul, who subsequently met the trustees. He told them that he understood their risk aversion but that they needed a better return than a conventional bank deposit. So he suggested a cash fund but also explained other asset classes. The trustees were receptive but cautious.
After getting advice on reserves policies, the trustees and the financial director attended a training course on charity finance and decided to give some discretion to Paul, who introduced some equities, bonds and commercial property into the portfolio.
Once these had performed and the trustees were comfortable, Paul added some hedge funds once it was suitable to do so.
After three years, Rowans still has 50 per cent of its assets in cash and bonds, but has diversified the rest into other asset classes that are non-correlated to keep risk down. The portfolio has been giving an annual return running at 8.5 per cent, which is a good premium return over cash for the same period.
It is vital that trustees, particularly the honorary treasurer, should be up to date with charity finance and reserve policies. Do as Chris and his fellow trustees have done - seek appropriate training and briefings. It's also vital to work with your adviser and, of course, to understand risk and how it fits in with your charity's profile.
- Rowans Hospice serves adults through its 19-bed centre and day services
- Fallout from the collapse of Enron meant the trustees were risk-averse
- The trustees attended a course on charity finances
- The reinvested money gives an annual return of 8.5 per cent