How can charity investors perform better in a volatile market?

January 9, 2018 at 17:29

Ahead of his session at our Investment Conference 2018, James Money-Kyrle looks at navigating the road in a volatile market.

When I was asked by CFG to write an article as the precursor for the year ahead, I find myself looking back over the last year or so and asking what lessons I have learned. It is too easy to get caught up in the minute by minute analysis of unpredictable political events. How will this help to make sense of a changing and volatile market? For the charity investor, I would argue that CFG’s Investment Conference in February will provide charity investors with a clearer perspective and debate.

Perspective is all, and mine has certainly transformed over the last 2 years, working at The Good Economy Partnership to deliver financial and investment strategies for government, investors, philanthropic foundations and trusts to build an inclusive economy and society. It has been an incredible journey. Flying back from the Dominican Republic last month where I was working with 25 Central and Latin American and African conservation trust funds with around $1 billion of investible funds.

Conservation trusts play an important role in protecting the most ecologically sensitive areas of our natural world. As irreplaceable parts of nature are increasingly threatened, it is critical that such trusts grow their assets to provide the funds to accomplish this critical mission. The work of conservation trusts must be carried on for generations. The need to provide for current operations and build the future purchasing power of their endowments requires investing for good returns.

While the locations may be exotic and my limited Spanish tested, I hear the same questions being asked by Trustees and executives of these endowments in El Salvador, Belize, Costa Rica and Ecuador. “How can we meet the target return in the current climate?” “How to find the right investment strategy, to maximize returns and minimize associated risks?” And as this group of conservation trusts was focused on the protection of the marine environment a natural focus on both green and now blue impact investment opportunities.

What links all these? I believe passionately in strong investment governance. Not just the essential components of having an effective investment policy, a capable and long-term investment committee and selecting and supporting a team of first-class investment professionals to help you achieve your investment goals. It goes deeper. And here there is something that charity investors can do to help navigate the volatile market.

I call it a 3 legged dance between your investment plans, your spending plans and your financial plans. Hard to imagine I know, but to look anything like the stars on Strictly, charity investors need to learn how to perform this better. Too often the committee structure divides and separates the conversation between how foundations and trusts earn their return from their investments, how they spend that return on their mission through grants or impact investments and how they need to keep these two in balance through their financial and fund-raising plans. Different committees looking after grants, finance, investment and all three parts have to work in sync for the effective stewardship of the investment funds.

Whether Finance Directors are the Bruno’s or Shirley’s on Strictly, they certainly have a crucial role to play. I sense that they are more often like the professionals, smiling through it all. To be nimble, we also need to get the timing right. Following on from their excellent governance reports, Kate Rogers and Richard Jenkins are doing a fascinating piece of research looking at the alignment of trustee meetings and investment horizons. As long-term investors, foundations and trusts need to align their own governance time horizons with those of the companies they invest in. And yet there is a real risk that a short-term focus, facilitated through 1/4ly meetings and reviews, mitigates the financial benefits of long-term investing and the social benefits of a long-term focus on sustainability through job creation, economic, environmental and social factors. Nick Murray compares long-term investing to planting a tree: “You don’t dig it up every 90 days to check on its progress. (Nothing much will have changed in that brief time and you might harm the tree). Give the tree enough room, enough light, and enough time. Then leave it pretty much alone.”

Looking ahead, I heard at both the Cazenove and Newton investment conferences the quote by the father of value investing, Benjamin Graham. “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The message is clear: what matters in the long run is a company’s actual underlying business performance and not the investing public’s fickle opinion about its prospects in the short run.

As long-term investors in a period of synchronised global growth, foundation and trusts, with well-practiced governance, are well positioned to glide across the dance floor with ease, if not always with perfect 10’s.

Investment Conference 2018 is on Wednesday 28 February and will be a roundtable setting, structured to encourage discussion amongst delegates and cultivate a knowledge-sharing environment. Book your place now!