The Foundation was formed from a generous endowment by Sir John Ellerman. We exist to make grants to charities and wish to do so for the long term. Investing our endowment provides us with greater capacity to make grants to charities into the future.
Our overall approach is to balance being an effective grantmaker with operating in the longer term, which we define as more than 30 years. Our long term target investment return is 4% plus inflation (based on RPI) per year. 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 2020, the portfolio value was £129 million.
Click here to read our full Investment Policy, and a summary of the key points is shared below.
Looking after our money
Our Trustees are responsible for the endowment and the management is delegated to our Finance & Investment Committee. 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 our managers. Specialist asset funds were largely replaced with more balanced mandates. We currently have seven managers who determine the asset allocation of their own portfolios. The Committee takes advice from specialist consultants when necessary.
Spending rate
Our spending rate is set each year at a level which recognises that we exist to make grants to charities and wish to carry on doing so in the longer term.
Our aim is to provide as much grant funding as we prudently can without compromising our capacity to sustain a similar level of funding in the future. To achieve this in a way that is reasonably insulated from short term financial market movements, we calculate our average quarterly net asset value over the preceding three years and budget to spend a percentage of this value, agreed by the Trustees each year. From 2003 to 2013, we spent 5% of our net asset value, which was the same rate as our target return over that period. 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.
Our approach is evolving, and we recognise that our aspirations require pragmatism too. It is our ambition to address the level to which our fund managers and investors invest in industries and corporate practices that are materially misaligned to our aim and funding categories. However, 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 and we expect our managers to engage with companies on our behalf over sustainability matters and report the outcomes of any engagement activity back to us. We are keen to grow our expertise in this area, in order to develop the appropriate policies with regard to collective engagement strategies, direct engagement activities through our managers, divestment and exclusions.
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