Charity Reserves: the good, the bad and the ugly

15 AUGUST 2013

Reserves: the good, the bad and the ugly

Gemma Woodward

Executive Director and Director of Responsible Investment

8 November 2016

Reserves – the good, the bad and the ugly

2Reserves – the good, the bad and the ugly

Source: Google images

3


Total funding, including grants and contracts to the voluntary and community

sector £587,673,569

Source: NICVA State of the Sector. The income and expenditure section examines the 2013-2014 funding environment of the sector, with data collected from the 2015 State of the Sector survey, the Government Funders Database, Freedom of Information requests, Grant Making Trusts, NICVA's Individual Giving 2015 Report and directly from funders.


Sources of income

4Sources of income

Source: NICVA State of the Sector. This section examines the percentage of funding awarded to the sector in 2013-2014 from different sources as well as the income the sector receives from public donations. Some caution must be used with regard to the total figure as the public donations figure comes from 2015 research due to the lack of data available for 2013-2014.

Question?

5Question?

What are the reserves for ?

Answer

6Answer

Delivering the charity’s objects

Reserves

7Reserves

What long-term plans does the charity have?

What kind of money is this?

What are the short, medium and long

term funding requirements?

How accurate is our cash flow

management?How do we manage

the medium and long term requirements?

Pots

8Pots

Restricted Unrestricted Designated

Timeline of requirements

Types of money / reserves

EndowmentPermanent / expendable

Mists of time

9Mists of time


Statement of Investment Policy (SIP) / Investment Policy Statement (IPS)

10Statement of Investment Policy (SIP) / Investment Policy Statement (IPS)

Statement of Investment Policy

Legal Requirement Trustee Act (Northern Ireland) 2001

The trustees may not authorise a person to exercise any of their asset management

functions as their agent except by an agreement which is in or evidenced by

writing

Not just bureaucracy

11Not just bureaucracy

Considerations:•Expenditure plans•Overall objective of the portfolio •Income requirements (and growth of that income)•Risk profile•Ethical requirements

Charity’s objectives and strategic plan

How do the charity’s investments fit into the strategic plan?

Portfolio


‘Good’ reserves policy

12‘Good’ reserves policy


‘Bad’ reserves policy

13‘Bad’ reserves policy


‘Ugly’ reserves policy

14‘Ugly’ reserves policy

Good causes


Headlines

15Headlines


Review annually

Clarity of content

Sense check versus financial position

Change position if appropriate

Objectives are not a benchmark

Are the investments delivering?


16Objectives are not a benchmark


EXAMPLEThe example objective above of ‘To grow the capitalvalue, as well as generate some degree of income fromthe portfolio’ would become specific to the charity and is fleshed out to ensure that there are clear objectives:

To grow the capital value in line with inflation asmeasured by UK CPI, as well as generate some degree of income from the portfolio, with an expected income of £X in year one (representing an initial yield of X%), which is anticipated to increase with CPI on an annual basis

In this example, the charity wants to ensure that thecapital of the portfolio maintains its purchasing power(inflation) and that the income grows in line with inflation over the longer term in order to ensure its spending power keeps pace as well

Having a monetary number in year one is helpful as this creates a clear requirement, a yield moves in line with the portfolio value and therefore is a moving target

• To grow the capital value of the portfolio

• To grow the capital value, as well as to generate some degree of income from the portfolio

• To generate income from the portfolio

Make it comprehensive

17Make it comprehensive

Powers

Scope of investment powers Investment objectives Management of the

investments

Responsibility for investment decisions Attitude to risk

Liquidity requirements

Types of investments: ethical?

Benchmarks and targets

Reporting requirements

Detail Review

Benchmarks and targets

18Benchmarks and targets

Benchmarks and targets The charity may wish to have three benchmarks – this

may seem excessive but remember it is the investmentmanager that is providing this information not the charity:

1) The market composite of indices which allows thetrustees to measure how well the portfolio hasperformed versus the market. If the trustees haveemployed an active manager this allows them tojudge whether there has been value added

2) The peer group measure allows trustees tounderstand how well their charity portfolio hasperformed versus other charities providing a degreeof comfort and a useful ‘second opinion’

3) A long term benchmark reflecting the investmentobjective – if the portfolio is not delivering what isrequired of it what is the point of it?

• Composite of market indices

• Peer group measure

• Long term benchmark reflecting the investment objective

Living document

19Living document


Disclaimer

20

This presentation has been prepared only for the recipient and date shown on the front page. It is not intended for any other persons and should not be relied upon by other persons.

This presentation has been prepared for information purposes only and is not a solicitation or an offer to buy or sell any security. It does not purport to be a complete description of our investment policy, markets or any securities referred to in the material. The information on which the presentation is based is deemed to be reliable, but we have not independently verified such information and we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. Any reference to the Quilter Cheviot model portfolio, which is used for internal purposes, is purely illustrative and should not be relied upon. The figures quoted do not include charges. Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return. You may not recover what you invest. Changes in exchange rates may have an adverse effect on the value, price or income of foreign currency denominated securities. Levels and bases of taxation can change. Investments or investment services referred to may not be suitable for all recipients.

Quilter Cheviot Limited is a private limited company registered in England with number 01923571, registered office at One Kingsway, London WC2B 6AN. Quilter Cheviot Limited has established a branch in Dublin, Ireland with number 904906, is a member of the London Stock Exchange, is authorised and regulated by the UK Financial Conduct Authority and regulated by the Central Bank of Ireland for conduct of business rules. Accordingly, in some respects the regulatory system that applies will be different from that of the United Kingdom.

Disclaimer

Charity Reserves: the good, the bad and the ugly

Government & Nonprofit

Transcript of Charity Reserves: the good, the bad and the ugly