Posted: 18 / 07 / 2024

If you’re a trustee of a charity, your main responsibility is to advance your charity’s purposes and any investment decisions should support this purpose.

Having an investment policy is crucial for any charity with surplus or reserve funds as it ensures that these funds are managed effectively and in-line with the Charities Statement of Recommended Practice (SORP). Trustees should regularly review this policy to make sure the funds are being used in the best possible way to support the charity’s goals.

Even if your charity doesn’t invest in traditional investments, keeping money in a savings or deposit account for future use (rather than for day-to-day expenses) counts as an investment. The same rules apply to cash investments as to any other types of investments and so your investment policy should cover this as well.

As a trustee, you’re expected to act with reasonable care and skill. If you lack the necessary expertise, it’s important to seek advice to ensure the best outcomes for the charity. The Charity Commission’s investment guidance outlines trustee responsibilities in ensuring that investments are suitable for meeting the charity’s objectives.

Why should charities invest?

  1. Financial Investment: To generate a financial return that supports long-term charitable objectives.
  2. Social Investment: Investments that directly advance the charity’s objectives while also aiming for a financial return.

How to create a Charity Investment Policy

An investment policy provides a framework for managing invested assets. While there are no strict rules, here are some key points to consider:

  • Objectives: Clearly define the purpose of your investments and how the capital or income will be used. For instance, an objective could be “to achieve a return after costs of 2% per year above inflation to maintain the real value of the funds.”
  • Available Funds: Assess your charity’s financial position and cash flow needs. Balance short-term cash requirements against long-term goals. Detail any permanent endowment funds or designated funds for specific future purposes in the policy.
  • Expected Returns: Specify the type of return you’re aiming for, such as:
    • Income: Regular income to support ongoing costs.
    • Growth: Investment growth to support future needs.
    • Social: Directly achieving charitable objectives through investment.
  • Risk Tolerance: Determine the level of risk you’re willing to take. All investments (including cash) come with their own risks attached but the overall level of risk will depend on the type of investments you have selected. You may be willing to take different levels of risk with different portions of money to meet multiple objectives.
  • Investment Timeframe: Identify whether funds are needed in the short term (12-24 months) or can be committed for longer periods. Generally, the longer you have, the more risk you might be able to take.
  • Ethical Restrictions: Define your criteria for ethical investments, considering what aligns with your charity’s objectives and avoiding investments that conflict with these goals.
  • Governing document: You will need to review your governing document to see if there are any restrictions or conditions on how you can invest.

FInally, your policy should be clear, concise, and easy to understand and follow, and must be reported in financial statements.

Types of Investments

There are various investments available, each with different risks and complexities:

  • Cash: The lowest-risk investment.
  • Fixed Interest: Loans to governments or companies with fixed interest rates.
  • Property: Physical buildings, either commercial or residential.
  • Alternative Assets: Such as infrastructure, hedge funds, or private equity.
  • Equity: Shares in companies are generally considered higher risk.

If you would like to understand more about how your charity can invest or review an existing investment policy please reach out to Ben Eastlake by emailing ben@sedulowealth.co.uk or our Head of Charity, Emma Houghton, by emailing emma.houghton@sedulo.co.uk.