Finance and investments

The Foundation was formed from a generous endowment by Sir John Ellerman. We invest this to generate returns and apply it to make grants to charities.

Our overall approach is to balance being an effective grantmaker with operating in the longer term, which we define as 30 plus years. Our target investment return is 4% plus inflation (based on RPI) per year in the long term. We have a total return policy, which means that we can spend both income and capital.

The value of our investments varies with movements in financial markets. At the end of our last financial year, 31 March 2017, the portfolio value was £142 million.

Looking after our money
A Finance & Investment Committee of Trustees is responsible for our investments. This Committee sets the investment strategy for the endowment. The funds are managed by carefully selected active managers, and are diversified across a range of asset classes. In 2013, we implemented a fundamental change to the way in which the investments are managed, having decided to delegate more day to day decision making to managers. Specialist asset funds were largely replaced with more balanced mandates. We currently have six managers who determine the asset allocation of their own portfolios. The Committee takes advice from specialist consultants when necessary.

Spending rate
We exist to make grants to charities, and wish to carry on doing so in the longer term. To do this, we take the average value of our portfolio over the preceding three years and spend a percentage agreed by the Trustees each year. From 2003 to 2013, we spent 5% of this average, which was the same figure as our target return.

Since April 2013, our spend rate has been 4.5%, which reflects a balance between our reduced target investment return and the increasing need of charities for grants.

Social and ethical considerations
We recognise that our endowment is invested in the real world. Consequently, there is a risk that our investment policies and investment decisions made on our behalf may be linked to corporate strategies or products which are poorly aligned with our own aim and values. This risk may have both reputational and financial consequences. We seek to minimise it by actively taking account of environmental, social and governance (ESG) issues when considering our investment policies and strategy, and through our engagement with the investment managers who are responsible for day to day investment decisions. 

Although, where practical, we exclude investments in tobacco-related companies, in general we do not exclude sectors or business activities from our investments. There are difficulties in setting thresholds for contentious activities within large and diverse global businesses and in determining just where to draw the line within an integrated sector or supply chain. The breadth of our charitable purposes also makes it difficult to set boundaries on a restrictive approach. We prefer to encourage our investment managers to take clear account of ESG risks in all investment decisions.