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The Trustee's Dilemma


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The Trustee of a charity

As a Trustee of a charity you are ultimately responsible, under the Trustee Act 2000, for the conduct of the investment management.  Trustees may delegate decisions over both asset allocation and individual investments to a professional investment manager if they feel that they have neither the skill nor experience to manage the investments themselves.  If they do delegate, the Trustees need to establish and adhere to a proper process of monitoring their manager.  The Charity Commission advises that the investment manager is formally reviewed on a ‘periodic basis’, normally every three to five years.

If the Trustees choose to carry out asset allocation themselves, they are open to the question: “Do they have the appropriate qualifications, time or experience to make suitable investment decisions?”  Whatever the approach, Trustees need to demonstrate that they have in place properly applied and documented arrangements to ensure a timely and thorough review of their asset allocation takes place, especially at times of change or trouble.  If for example a major financial crisis blows up in August, when Trustees are often away, how would necessary changes be made or due diligence in managing the assets be carried out?  Trustees have a number of options:


  • They may decide to take periodic advice only, but in doing so they run the risk that something major may happen which may challenge or upset the basis of that advice.
  • Trustees may decide to grant their chosen investment management limited discretion, setting target ranges for asset categories and allowing managers flexibility within those ranges.
  • It is possible for Trustees to agree an overall investment strategy for the charity and ask for the manager to contact the Trustees if they think a major change is necessary.
  • Or the Trustees may allow the investment manager full discretion to manage the investments, in line with the stated investment policy.

Charles Stanley Pan Asset has experience of working in all these ways.  Although, we think full discretion works best, we can work with any sensible arrangement a charity feels happy with.  Any one of these methods would fulfil the normal fiduciary requirements for Trustees to take proper advice and to carefully consider an appropriate investment strategy.  It should be recognised that the long term strategy may require urgent revision or reconsideration in those rare times when a fundamental change or big event comes along to upset the charity’s normal plans or patterns.  This can equally come from the financial markets or as a result of the sudden changes to charity’s day-to-day operations.

If Trustees decide to pursue an ‘active’ (or stock-picking) strategy when it comes to individual shares and pooled funds, they need to put in place robust processes for selecting specialist investment managers.  Selecting an appropriate benchmark and investment targets for monitoring will be a further Trustee decision, as well as holding periodic reviews to see how these managers are getting on.  This will add to the complexity and cost of the whole task.  Most managers who offer active share selection tend to underperform their relevant benchmark or index after deducting expenses, making it more likely that the Trustees will have a disappointing experience.

A better solution is to decide on an appropriate asset allocation policy which closely matches the charity investment policy and implement it by investing into passive funds.  This removes complexity, cost and the risk of poor share selection by active managers while offering liquidity, transparency and the ability to be much more dynamic with asset allocation in times of trouble.

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