Charities: Getting your investment policy right

A well thought-out investment policy is essential to achieving your charity’s goals and demonstrating that Trustees have fulfilled their duty of care.

Business Resilience Programme 1920X1080 Sep 20
Christopher Golding
Published: 26 May 2017 Updated: 14 Dec 2022

The introduction of a new charities law in Jersey (the Charities (Jersey) Law 2014) and the appointment of a Charities Commissioner by the Chief Minister to supervise registered charity governors means that trustees need to consider their activities and responsibilities in relation to assets under their supervision very carefully. Cash returns are at record lows and trustees are under pressure to mitigate the impact of inflation on the assets in their care or to enhance returns by taking more risk with their investments.

Child Charity Heart

Smith & Williamson is one of the UK’s largest independent financial services firms and has a rapidly growing presence in Jersey as a tax, accountancy and investment services provider. Smith & Williamson Investment Management manages over £1.8bn of assets for charities and Christopher Golding, Head of Investments in Jersey, outlines some practical guidance for charities who wish to generate better returns in a well-governed manner.

A well thought-out investment policy is essential to achieving your charity’s goals and demonstrating that Trustees have fulfilled their duty of care.
A written investment policy provides a framework for your charity’s investment decisions, helping Trustees to manage the charity’s resources effectively and demonstrating good governance. It’s like a road map for the Trustees and your investment manager to follow, setting out the charity’s investment objectives and how you would like your portfolio to be managed.

Trustees have a duty of care when appointing and reviewing investment managers. The Trustees are always responsible for setting investment policy, deciding whether to delegate decision-making and reviewing performance measurement.

A written investment policy is a requirement of the Trustee Act 2000 in the UK and generally accepted as a universal standard of best practice for trustees and indeed all types of organisation to follow. Although you cannot delegate writing the policy to an investment manager, it is helpful to prepare the policy in consultation with them or a specialist independent consultant.

Here are five key areas that need to be addressed when creating your investment policy.

1. Objectives and investment powers

The aim is to give enough background information to the investment manager so that they can easily identify your mission, beneficiaries, structure, type of charity and your financial objectives.

This should include any liquidity requirements and whether the Trustees are seeking income only or a ‘total return’ approach, meaning that some of the capital return of the charity can be spent each year. This needs to be carefully considered and documented.
Any restrictions on the investment powers of the charity (for example, imposed by its constitution or donors) should also be documented explicitly, to remove ambiguity.

2. Time horizon and risk

Your policy needs to set out the time horizon over which your portfolio will be invested, how much risk the Trustees are prepared to take and how these risks will be mitigated.

Risk is strongly linked to time horizon. For example, cash is generally seen as low risk, but currently produces almost no return and is constantly being eroded by inflation. So over longer time periods, cash becomes high risk.

Risk will also mean different things to different people, so it’s essential Trustees and their investment manager have a strong understanding of what each means by risk.

3. Portfolio constraints and restrictions

Your policy should specify permitted asset classes, restrictions on investment types or ethical considerations, base currency and tax considerations.

Many charities now have an ethical investment policy. This might be based on negative screens, such as excluding investments in tobacco or arms manufacturers, or positive screens, which aim to allow investment only in companies following the very highest environmental, social or governance standards.

A charity can invest on an ethical basis to avoid investments which conflict with its aims, if it might lose supporters or beneficiaries if it doesn’t invest ethically, or if there is no significant financial detriment.

4. Strategic asset allocation, benchmarking and targets

Asset allocation is the single biggest factor in determining both risk and reward.

Therefore it’s vital to agree a strategic asset allocation that will allow the charity to reach its long-term financial objectives. This can also be used as the basis of a performance benchmark against which the Trustees can compare the performance of the investment manager.

Many charities also set an investment range within which the investment manager can make changes without referring back to the Trustees.

5. Performance and reporting

Trustees must assess the performance of their investments and decide what reporting they require, for example quarterly valuations and annual investment reports. The trick is to make sure that reports are clear, performance history and costs are transparent, and Trustees understand them.

You should also agree on the frequency of regular review meetings. You should review your investment policy at least annually and have a more comprehensive review every five years or so.

Quick checklist for establishing your investment policy

  • Appoint a sub-committee to advise the full board of Trustees
  • Make sure investment objectives are workable and achievable
  • Document the rationale behind decisions for future generations of Trustees
  • Keep it short and relevant
  • Get your investment manager to agree, sign and date your policy
  • Review at least annually

Smith & Williamson has been advising private clients and their businesses since 1881 and has more than £18.5 billion of client assets under management and advice, of which around £1.85bn is for charity clients as at 31 March 2017.

Smith & Williamson International Limited is regulated by the Jersey Financial Services Commission. Smith & Williamson International Limited is a company incorporated in Jersey, with Company Registration Number 120252 whose registered office is at 3rd Floor, Weighbridge House, Liberation Square, Jersey, JE2 3NA.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.