"A couple of years ago I had an interesting conversation with a trustee and head of the investment committee at a well-known independent school. Despite being a seasoned investment professional, they admitted that they hadn't done a full investment review on their £10m portfolio for twelve years. They were concerned as performance had been poor and consistently behind the peer group.
The new guidance from the charity commission kicks off with a section on the duties of a trustee when it comes to investments. It states that the 'principal duty is to further your charity's purposes'. It goes on later to say when talking about the Investment Manager that you should regularly review the service they provide. All charities would say they do monitor their investments on a regular basis, but this is a little different from doing a full review. The latter could involve getting other investment managers to put forward a proposal for comparison. Many charities may delay such an exercise. I would say that they need to undertake a full review to ensure that he and the other trustees are properly furthering the charity's purposes.
Underperformance is commonplace and costly. A two percent annual underperformance compounded over 10 years is 22%. A large difference in long-term investment performance could significantly affect a charity's funds - particularly if operating costs continue to rise. This can really add pressure to volunteers or fundraising efforts, or even lead to cost-cutting.
In my opinion it would be wise to insist on a benchmark that will measure performance relative to the peer group. Provided they are happy that the Investment Manager is ahead of the mean of the peer group, and they have done a proper investment review every three to five years, they can head into the New Year knowing that they have fulfilled a large part of their role as a trustee. If not, then it could be time to make a resolution for 2024."
If you are looking to review your charity's performance, we would be happy to provide you with a proposal enabling you to make a comparison with your existing manager. Our bespoke approach to investment management allows us to work with trustees and create a portfolio in line with your charity's ethos.
This should not be construed as investment advice; each charity's circumstances are unique and should be considered on an individual basis.