Why your charity needs an investment policy statement

By Nathan Munt, Lucas Fettes Financial Planning
Charities, their trustees, and volunteers are some of the best examples of altruism; however, to sustain and grow their generous work, many charities are required to invest a proportion of their assets.
Published in Norfolk Director magazine, Spring | Summer 2022
Never Miss A Copy
Sign up now to receive for free the latest magazine as an e-publication

Ensuring Business as Usual: Lucas Fettes

As a trustee, you have many duties and responsibilities that extend to how you manage and invest any of your charity’s funds.

Can a charity invest?

All charities have investment powers; however, much of the scope of these powers are determined by the charity’s own governing documents. Before proceeding, trustees should familiarise themselves with these documents to understand what they can and can’t do.

Trustees must ensure that they know what they’re doing when making investment decisions. They may have experience on the board or within the organisation that they can rely on, but external professional advice should be taken where necessary. This can also provide a more objective approach.

How to set investment objectives?

Before any charity invests, it’s imperative that it has drafted an Investment Policy Statement (IPS). It should be held alongside your existing governing documents, as it will set out the decision-making process for investing and detail how any investments should be managed.

Firstly, it’s important to identify how much the charity can afford to invest, depending on:

  • Any immediate financial needs
  • Future spending commitments
  • Whether there are restricted funds
  • The long-term plans of the charity
  • The anticipated demand for the charity’s support or services
  • Income and expenditure within the charity (including any grants, donations, and such like)

In doing so, a charity can identify which funds need to be readily accessible and those that can be tied up for longer periods.

The IPS should outline your charity’s investment objectives and how it intends to achieve these, including:

  • The scope of investment powers and restrictions
  • Key investment aims and objectives
  • Any capital growth and/or income requirements
  • Who can make investment decisions
  • Forecasted time horizons and liquidity requirements
  • How often the investments will be reviewed
  • Whether ethical investment considerations are needed

The dangers of investing without an IPS

An IPS gives your charity the framework, direction and clarity it needs to make investment decisions. Without it, your charity could make costly mistakes.

Preparing and following an IPS allows trustees to demonstrate how decisions have been made in the charity’s best interest, providing a clear audit trail if anyone were to challenge the investment choices.

Ultimately, the trustee board must ensure that:

  • The investment strategy is appropriate for the charity’s aims
  • Investments are reviewed and monitored regularly
  • Professional advice is taken where necessary

The value of investments can fall as well as rise, and you may not get back the amount you originally invested. This article constitutes a financial promotion.

Lucas Fettes Financial Planning® is a registered trading name of Lucas Fettes & Partners (Financial Services) Limited and is authorised and regulated by the Financial Conduct Authority.

Why your charity needs an investment policy statement 1

Nathan Munt is a Chartered Financial Planner at Lucas Fettes Financial Planning, a multi-award-winning chartered firm of independent financial planners.
T: 01603 706854
E: nathan.munt@lffp.co.uk
or visit lffinancialplanning.co.uk

Table of Contents

Charity Trustee investment Management

Working  with charities and not for profit organisations to provide tailored financial planning solutions that meet the needs and objectives of their trustees.

Share This
Suffolk Director Magazine

SIGN UP

WHEN RELEASED WE WILL SEND YOU THE latest digital version.