The Foundation was formed from a generous endowment by Sir John Ellerman. We invest this to generate returns from which we make grants to charities.
Markets are volatile so the value of our assets varies from month to month. In March 2015, the end of our last financial year, our portfolio of investments totalled £135m.
Our overall approach is to balance being an effective grantmaker with operating in the longer term, which we define as 30 plus years.
Looking after our money
A Finance & Investment Committee of Trustees is responsible for our investments, which takes advice from specialist consultants when necessary.
This Committee sets the investment strategy. 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 decision-making to managers. Specialist asset funds were replaced with balanced mandates, with the five new managers determining the asset allocation of their portfolios. We also retained a property fund.
We have a total return policy, which means that we can spend both income and capital.
Our target investment return is 4% plus inflation (based on RPI) per annum in the long term.
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 last three years and spend a percentage agreed by the Trustees; from 2003 to 2013 we spent 5% of this average. This was the same figure as our target return.
Since April 2013 onwards, our spend rate has been 4.5% in response to our reduced target investment return, while seeking to balance this with the increased need of charities for grants.
Social and ethical considerations
Where practical, we exclude investments in tobacco-related companies.
We have one social investment of £250,000 in Charity Bank, in the form of an unsecured 10-year loan. This combines a social and financial return. Charity Bank lends to charities and the funds are recycled to help yet more charities. We receive an annual income and the funds should be returned to us at the end of the loan. Trustees understand that the financial return could be lower than other investments over the 10 years.
In the 2013/14 financial year, Trustees approved a second social investment, of up to £250,000, in a Fund created by Social Finance to expand the number of Shared Lives schemes in England. These provide a home and family life for adults who are unable to manage on their own. The first payment was drawn down in April 2015.