This policy sets out the principles and ethos of the University’s asset investment practices. It ensures compliance with the Trustee Act 2000 and satisfies the guidance laid out by the Charities Commission (CC14).
2. Risk attitude
The University’s attitude to risk is that it should be minimised wherever possible. It would like to maintain its capital investment whilst providing income to sustain the value of the investment. It recognises, however, that there is an element of risk inherent in any investment, and more so where a return can be achieved in excess of that available from bank deposits. The University also recognises that it is possible to minimise the risk in these areas by diversifying the type of asset class in which the investment is made. The University believes that the following asset class mix should be set as a guide to the risk exposure, which is based upon standard charity asset class mix.
Unless otherwise confirmed in writing, the fund manager will have the discretion to vary the UK element of the portfolio by up to 15%, the bond and overseas element by 10%, and property and cash elements by up to 5% of the positions identified above.
On selection of the fund manager, the University will discuss the options available in respect of risk diversification. The purpose of this attitude to risk is to enable the fund managers and the University to manage its investment assets in such a manner which allows flexibility to react to changes in the market conditions from time to time.
Any change in asset class diversification in excess of that noted above must be authorised by the Finance Director, or, in the event of his unavailability, and where it is considered appropriate, the Financial Controller.
3. Basis of investment
Under the terms of this policy, investment funds will be held under the management of external fund managers, as the University recognises that it does not have the in-house expertise or capacity to enable it to effectively manage these funds. Under the terms of any agreement with the University, the fund managers will take appropriate actions to ensure that all investments comply with the rules regarding Qualifying Investments in respect of charity investments. All investments held by fund management should be held in a nominee company owned by the University, unless otherwise agreed in writing.
4. Socially Responsible Investment
The basic premise of any asset investment is that the returns on the investment provide sustainability to the asset class. The aim must be to provide as high a return as possible, in any given market conditions, whilst having due regard to social, environmental and governance considerations. Whilst the investments will be managed by external independent fund managers, the University will ensure that the appointed managers encourage good behaviour or discourage poor behaviour through their own investment screening processes.
These processes should take into account the University’s own investment preferences in respect of social, environmental and governance issues, as well as considering good practice. The University considers that the appointed managers should consider the following criteria when assessing the appropriateness of any investments they undertake on behalf of the University: Positive screening The University considers that, where possible, all investments should be in companies which are transparent – that is, they should have clear recognisable policies and have a culture of openness.
The University would expect its investment portfolio to exclude investment – as far as is identifiable – in any company where more than 10% of its income is derived from any of the following activities:- gambling, tobacco, pornography, adult services, third world commodity extraction and child labour.
The University – through the Finance Director - will also consider expressions of concern, where it is indicated that an investment is wholly contrary to the University’s objects. To be properly considered, the complaint has to be received from a representative body – e.g. trade union, student union – with clear evidence as to why it is being brought to the attention of the Finance Director. All amendments to the prohibited investments noted above will be notified to the fund managers in writing.
When considering the appropriateness of any investment and measuring the returns thereon, the fund manager should take into account the fact that the University is exempt from Corporation Tax for Qualifying Investments, under the definition of the Income and Corporation Taxes Act 1988. This means that the tax deducted from dividends is not recoverable, whereas interest and gains can be received on a gross basis. Additionally, the University will not be able to recover VAT on any taxable charges made by the fund manager and, therefore, the cost of administration will be the gross charge (that is, including VAT).
6. Funds Liquidity
Any funds must be held in a form which enables liquidity and settlement of the investment within a minimum of 4 weeks, unless otherwise indicated to the investment managers in writing.
7. Performance target
The University benchmark for its investment assets will be the WM Unconstrained Index, or another benchmark relevant to the University’s peer group, and will be agreed with the fund manager on appointment and annually. This will be reviewed as part of the annual reporting process.
8. Selection of fund manager
Fund managers will be selected by the Finance Director from a shortlist proposal prepared by the Financial Controller. The number of fund managers used is at the discretion of the Finance Director, and is dependent upon the value of the fund at the time of the review. The fund manager selection process is provided in detail in appendix 1.
9. External reporting
Investment managers will be expected to report quarterly to the University as follows:
(a) Investment returns – a summary of the performance against agreed benchmarking for the quarter, the previous 12 months and the previous 5 years or since appointment (as appropriate).
(b) Investment criteria – an outline of the stock selection decisions in relation to the investment criteria agreed with them on appointment and as summarised in this policy.
(c) Transaction reporting – a schedule detailing purchases, sales, rights issues, nonmarket transactions, capitalisations or any other transactions. This should include details of all cash transactions.
An annual report should be provided, co-terminus with the University year end of 31 July, which provides details of the investment asset valuation, annual returns and a review of the performance by the fund manager.
Any negative variance of more than 25% from the agreed benchmark must be fully discussed. In all cases, these reports should be available within 14 days of the quarter or year end date. In the spirit of promoting environmental good practice, the University would expect the quarterly reports to be sent by e-mail only, to a named contact. The University will expect to annually review the fund managers’ performance in a meeting. If the University feels that the performance is good or better, then it may, in order to restrict travel costs, conduct this review by telephone or e-mail.
10. Internal reporting
The Finance Director will receive, annually, from the financial controller a report summarising the performance of the investment assets and the fund managers. The Finance Director shall report on significant performance issues to the Governing Council on an annual basis, in line with the presentation of the annual financial statements. Where there are significant issues during the year, this will be reported to the Finance Director, who will consider presentation to FEGP.
The basis of the fund manager’s remuneration will be that detailed at the time of the appointment. One month notice should be provided to the University in the event of any changes to the fee and commission regime of the fund manager.
12. Discretionary Powers of Finance Director
Where considered necessary, the Finance Director has the power to alter the terms of this investment policy. All amendments will be provided in writing. If, at any time, the investments are found to be in breach of University policy, the Finance Director, upon being made aware of the breach, can either request rectification or, if immediate rectification will cause financial loss, temporarily allow the breach by identifying this acceptance in writing. References CC14 Investment of Charitable Funds: Basic Principles
APPENDIX 1: FUND MANAGER SELECTION
Where it is deemed appropriate to either replace an existing fund manager or increase the number of fund managers used, the following selection process will be adhered to.
- A list of providers will be made based on experience and advice received from relevant sources (e.g. other Universities). This list will be provided by the investment team to the financial controller, graded for preference and with indicative reasons for the grading.
- The financial controller, in conjunction with the investment team will provide a shortlist for the Financial Director’s consideration. Where appropriate, the process will include meetings with the providers to confirm their suitability.
- The Financial Director will be responsible for the selection of the provider.
The pre-selection process should incorporate, as a minimum, the following
i) Is the investment product properly registered with the relevant authorities?
ii) Can the provider comply with the conditions for investments as laid out in the investment policy?
iii) What is the risk inherent in the investment? What is the maximum monetary risk to the capital?
iv) How does the investment make returns?
v) What is the fee structure proposed? What returns are required before the investment breaks even?
vi) What is the liquidity of the investment?
vii) What benchmarks do the fund management consider appropriate for this investment?
viii) What reports are produced and what information is presented on a quarterly/annual basis?
ix) What is the investment process? How is a portfolio constructed and how is an individual investment selected? Are decisions documented and is there any reporting on significant investments when they are made?
x) How are document signatures controlled or other forms of authority – particularly those which transfer our money and securities
xi) What compensation rights exist? Additional questions may arise from the answers to the above, dependent upon the value of the proposed investment.
Last reviewed: 30/10/2020
Policy Owner: Finance