Feature – Charitable foundations

Case study – Westminster Foundation STRONG ETHICS

The Westminster Foundation, led by the Duke of Westminster, provides opportu- nities for young people and their fami- lies who live in Westminster, Chester and rural areas, while also looking to raise their aspirations and improve their prospects. The foundation’s £110m of assets are managed by charity invest- ment specialist CCLA in a balanced portfolio which can invest in a wide range of products. “We chose them after an extensive ‘beauty parade’ because they had a good mixture of great performance, within a balanced portfolio, and most importantly, their approach to ESG, sus- tainable and impact investing was very comprehensive,” says Henrietta Gour- lay, investment manager at the Gros- venor Estate, the body that oversees all aspects of the foundation’s finances. “We have a strong ethical-impact-sus- tainable focus throughout Grosvenor, and this is an integral part of our invest-

ment philosophy within the Westmin- ster Foundation,” Gourlay says. Like all charitable foundations there is a need to ensure that the investment can generate sufficient income to allow the Westmin- ster Foundation to make grants. “So, there is a balance to be met,” Gourlay says. “We did consider a couple of index funds, but they did not provide us with enough confidence from an ESG perspective.”

Don’t forget the fees

The charity has an internal target of return that needs to be met for it to award grants. “As it is important that grants are not made out of capital, which would result in a dwindling pot,” Gour- lay says. With this in mind, the West- minster Foundation initially sent a ques- tionnaire to a list of managers with one question focused on their target returns. “This narrowed down the pool of poten- tial managers, and the deciding factor

was on their approach to ESG-sustaina- ble investing. Fees were also an impor- tant factor in our choice,” Gourlay says. As well as complying with the Westmin- ster Foundation’s ESG ambitions, CCLA has its own exclusion list, which includes, amongst other things, por- nography and cluster munitions. “When you invest in a fund you relin- quish control of the investment, so it is important to make sure that the manager you choose is aligned with your own investment philosophy,” Gourlay says. “Investing with ESG in mind is very personal and presents a lot of conflicts.”

Thanks to the focused investment approach, nothing has changed due to Covid-19. “CCLA has proved to be nim- ble and we had a phenomenal return from them last year, given the circum- stances,” Gourlay says, but adds: “We are well aware of the destructive impact that Covid-19 will have on the commu- nities we support. I am pleased that we have been able to react quickly and with great flexibility to support those most in need.”

Case study – The Church Commissioners for England SINGING FROM THE RISK AND RETURN HYMN SHEET

The Church Commissioners for Eng- land manages a

£8.7bn investment

fund, all in a responsible and ethical way – via a diversified portfolio spread across a broad range of asset classes, consistent with its ethical guidelines.

“Our objective is to balance risk and return to deliver sustainable distribu- tions. This aim is encapsulated in a tar- get return of Consumer Prices Index (CPIH) +4% per annum measured over the long-term,” says Tom Joy, chief investment officer for the Church Com- missioners for England.

This target is reviewed periodically by the commissioners’ board to ensure it is

52 | portfolio institutional | April 2021 | issue 102

realistic, within acceptable risk tolerances, given major asset class valu- ations and resulting prospective returns. Several core investment beliefs govern the commissioners’ philosophy and investment approach. First is that asset allocation should be strategic but not static. “Markets are not efficient and excessive fear and optimism by market participants creates valuation extremes, which a patient investor can take advan- tage of,” Joy says.

“In the absence of valuation extremes, we expect our portfolio to be diversified across a broad range of real assets, like equities and property, which are tied to

economic activity and provide the best long-term returns after taking account of inflation,” Joy says. “Taking account of ESG issues and good stewardship is an intrinsic part of being a good investor for ethical and financial reasons. “The best returns will be driven by com- bining aligned partnerships, with the strongest external managers, and hold- ing assets directly where we have com- petitive advantages,” Joy adds. By December, around 40% of its assets were managed internally and 60% by third parties. Cash management, a small element of public equities, most real estate and tactical asset allocation are managed internally, with the rest by external managers.

“There is an inverse correlation between the efficiency of an asset class and the

Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56