Our focus is on: Ensuring Ensuring our long-term
financial position is secure and our spending levels sustainable
Responding
Responding rapidly to new opportunities
Preserving
Preserving, at least, the real purchasing power
to the investment base Planning
Planning to sustain funding to deliver our mission
Reserves policy Our reserves policy is to set spending at a level intended to sustain funding to deliver our mission while preserving the investment base. Our overall investment objective is to seek a long-term inflation-adjusted return of at least 6% per annum. This should provide for real increases in annual expenditure while preserving the capital base in real terms.
Investment policy Our assets are invested in accordance with the wide investment powers set out in the Trust Constitution and within its Investment Policy. The Investment Policy is reviewed annually by the Board of Governors and was amended in September 2009. We use a blended 50/50 US/UK CPI measure to reflect the globally diversified nature of our assets. Diversification is a key factor in managing the inherent risk of investments. We invest globally and across a very broad range of assets and strategies.
Investments are made through a variety of arrangements, including direct investments managed by our investment team, outsourced managers who invest on our behalf and investments in collective investment vehicles of various kinds.
Further details of our investment philosophy and approach to risk management are laid out in the Review of Investment Activities section of the Trustee’s Report.
It is our policy not to invest in companies that derive material turnover or profit from tobacco or tobacco-related products.
Expenditure policy Our annual grant commitment budget is set by reference to a three-year weighted average of the values of the investment assets in order to smooth the effect of short-term volatility. Adjustments to this budget can be made in a controlled manner to reflect expected known events such as adverse economic or market events. This has enabled us to reduce the impact of the recent recession on our charitable funding.
Over the next five years we aim to commit over £3 billion funding for charitable activities; however, the actual amount will depend on our investment performance.
The Board of Governors regularly monitors market and economic conditions and has currently set the spending policy as committing 4.7% of the three-year weighted average of investment assets. This results in an expected annual cash payout of 4.0% of the investment assets because the commitments are paid out over several years.
Financial position At 30 September 2011 the Group had investment cash, certificates of deposit and cash in the bank to the value of £480 million against current liabilities of £862 million. The Trust’s Reserves policy and Expenditure policy are set out above. With this in mind and after considering the 2012 budget and longer-term plans, the cash flows and the highly liquid nature of a substantial portion of the Trust’s investment assets, the Trustee is satisfied that it is appropriate to adopt the going concern basis in preparing the financial statements of both the Trust and the Group.
Annual Report 2011 | 07
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