Third Sector Extra: How we learned to love investment

Investment is a daunting business - and never more so than now. How do those trusted to act in the best interests of charities make the right decisions? Vivienne Riddoch asks three finance directors to describe their experiences and offer some advice.


Philip Parker

The YWCA has about £30m invested in what Philip Parker, its finance director, describes as "a fairly standard, diversified portfolio - about 60 per cent UK equities, 20 per cent overseas, property, a hedge fund, commodities and some cash". YWCA's focus is on long-term investment that preserves capital rather than meeting income targets.

Decisions are made by an investment committee that comprises members of the board of trustees and one co-opted member. Parker provides research to the committee, which then decides overall asset allocation as well as appointing a number of fund managers. Working with several managers exposes him to different views, as well as spreading the risk - "diversify your assets, but also diversify your fund managers" is his advice. He does, however, caution against hanging on their every word: "You need to recognise that they are your providers, so always take their advice with a pinch of salt."

That said, you must also trust fund managers to do their jobs, he says. "Giving them some discretion about practical decisions on asset allocation is very productive. They can vary how much they have in property, overseas or UK equities, based on their understanding of the markets. We give them very broad bands and encourage them to trade within those."

Parker believes that some of the charity's best investment decisions have yet to come to fruition. "We are diversifying the mix of things we invest in, putting more money into property and commodities. In the long run, having that broader mix of assets will be beneficial." L


Simon Bass

A finance committee oversees all financial matters and advises trustees on strategy at Action for Children. However, most investments - including those of the pension fund - are handled by the Central Finance Board of the Methodist Church (there are historic links between charity and church). "They've got the expertise and they invest in an ethical manner, which is important," explains Simon Bass, the charity's executive director of finance.

The CFB is closely scrutinised. "We review their performance, agree the targets to measure their performance against and use independent advisers to consider whether the investment strategy is appropriate and comprehensive," says Bass.

The key to staying in control of investment, he says, is understanding the issues: "You need to be reasonably well informed in order to challenge the investment advisers; you've got a duty to understand what you're being told rather than taking it blind." He compares it to making any consumer purchase: just because investment involves large sums doesn't mean that it's appropriate to absolve yourself of all understanding.

"You need to be an informed customer. Different investment decisions have different risk profiles. You need to be able to assess that well enough to decide whether your organisation's got an appetite for it."

Whatever you decide, though, there is no perfect decision. "You should try to come up with something that works for you and is the least worst option." After all, he concludes, "you won't get it right when big global investment banks can't get it right".


Petra Ingram

Sightsavers' cash is managed in-house, but its investment portfolio of about £4.5m is handled by an outside adviser, working closely with the charity's investment committee.

"I think the trustees have a responsibility to have a professional managing that sort of money," says Petra Ingram, the charity's finance director. The portfolio is not designed to generate income. Sightsavers' aim, as with the YWCA (above), is to preserve capital. With this in mind, the organisation recently reviewed its reserves strategy, looking at why reserves are held and the related liquidity requirements. This, says Ingram, is a valuable exercise for any charity. "My advice would be to really understand why you're holding your investments, and then to structure your strategy around those reasons," she says.

There is scope for taking a gamble on the ups and downs of the market, she says: "If you're not worried about preserving the capital in the short term, you can expose yourself to some of the market volatility. But if you were holding everything in equities now and you needed to have access to your funds quickly, this would not be a good time to sell equities and you would be doing your charity a disservice."

It is, she says, important to be aware of when you might potentially need to tap into reserves.

Ingram's best move of late, given the state of the global economy, has been to maintain about £2m in cash. "We're getting quite a good return," she says. "It's been a good decision."


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