At Work: Finance and IT - Investment - Trustees must engage with strategy

Nick Rickard, head of charities at PSolve Asset Management

One of the biggest drivers in investment strategy in recent years was the Myners Review, set up by the Government to consider what decisions should be made by institutional investors - including charities.

Following the report by Paul Myners, chairman of Gartmore Investment Management, charity trustees now need to be seen to adopt best practice by setting themselves a series of guiding principles, as well as complying with the Trustee Act 2000. These principles need to be disclosed in a statement of investment principles, along with reasons for any departures from best practice.

Key principles include ensuring decision-makers have sufficient expertise, that investment objectives are suitable to meet liabilities and that they take into account the attitude to risk.

Investors should focus on strategic asset allocation. They should also make sure they understand the investment mandate (including all transaction costs) and consider an appropriate benchmark.

There are two main approaches to the decision-making process - a balanced discretionary mandate or one that is specific to an investor. The investment objectives should reflect the liabilities of the investor.

To meet the requirements (liabilities), there are two investment needs - income and capital growth.

Investors have traditionally viewed gilts as the best way to deliver income and equities as the best way to deliver capital appreciation. The split between the two has often been reached by the use of financial models.

But investors should ask if gilts are the right way to deliver income and whether equities can be relied upon to deliver strong returns. If this is not the case, what are the alternatives? The key issues for consideration are the expectation of return and diversification. Hedge funds, private equity and commodities are increasingly being considered.

However, it is crucial that the investment strategy should meet the funds' liabilities. It's vital to consider a full range of strategies, with greater emphasis placed on governance. Finally, the chosen investment policy should be reviewed annually and the strategy agreed by all trustees.


- Charity trustees must adopt best practice and comply with the Trustee Act 2000 when setting an investment strategy

- Decision makers must have sufficient expertise and suitable objectives

- All investment policies should be reviewed annually.

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