Reporting and reviewing investment information
June 2009 Supplement
Although investment performance should be the main determinant of trustees' satisfaction...
...it is vital that they also receive high quality reporting in a form that is easily understood. Charities need to review where they stand financially and this means receiving detailed investment reviews in a language they can understand, a valuation of the portfolio reflecting changes made since the last report (e.g. the previous quarter), and the outlook for the future. There should also be a clear summary of performance against the target set out in the investment strategy agreed between the charity and the investment manager.
Reporting packages
Figure 1 summarises the components of a typical quarterly reporting package. However, it should be possible to get this information more than quarterly if this is required – indeed trustees should expect most of this information to be available for more regular reviewing if that is what the trustees or the finance team want.
Investment manager/charity partnership
It is important that investment reports are delivered to charities in a form that the average ‘lay’ trustee can understand. Few are likely to have had an investment background, but they need to understand the significance of what is happening to their investment assets. A key part of a charity fund manager’s job is being able to clearly explain and describe what they have been doing and why, and what impact these things and the market in general have had on the clients portfolio. Charts and graphs can help in terms of getting a message across.
The job of a charity fund manager is somewhat different to that of providing generic institutional investment management, where there is typically a specialist intermediary involved who will act as the client’s professional gatekeeper. For a charity fund manager, where there is often no other professional sitting at the table, there is a significantly greater burden of responsibility to ensure that the trustees truly understand what is happening to the portfolio. Unlike a private individual, it is not ‘their’ money, but a trustee is personally liable if things go astray: it is the duty of a charity fund manager to ensure that trustees are particularly well informed and have enough understanding of what is going on to agree decisions on any action that might be taken as a result of performance results or recommendations from the investment manager.
It is usual for one firm to act as the sole investment adviser to the charity, and a good charity fund manager will also step back from time-to-time to focus on longer term strategy rather than short-term tactics. There is no specific timetable for such discussions, but the fund manager should help the trustees ensure that their wider investment objectives are being met by their current mix of assets and strategy.
This may need to change occasionally to reflect changes in market conditions (asset classes or investment techniques that should now be employed or ignored), or indeed changes in the charity’s circumstances – additional monies, building
projects etc.
Trustee training
A number of investment managers offer trustee training so that trustees can keep up to date with their responsibilities in what has become a rapidly changing economic and regulatory climate. Sometimes it is possible to attend half-day seminars on just investment management, while other courses cover the wider remit of trustee responsibilities, such as general governance and financial reporting, but include an investment element as part of the overall programme.
Topics generally include:
- Role and authority of trustees.
- Relevant legislation and regulation (e.g. Trustee Act 2000).
- Investment committees.
- The general power of investment.
- What is unique about charity investments.
- Defining investment strategy.
- Producing a written investment policy.
- Enacting your investment policy.
- Asset classes.
- Investment styles and approaches.
- Role of investment managers.
- Performance management and reporting.
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from Cass Business School. She has been one of the judges for the non-profit category of the Chartered Institute of Marketing's Excellence in Marketing Awards for the second year running.
She has also acted as clerk to the trustees of a small almshouses charity and as a member nominated trustee to a pension scheme of a multinational publishing company.
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