# Small charities should not shy away from investing for social good
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2017-09-29
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: How Trustees Can Grow Your Charity Fund with Investments
Meta Description: Discover how Trustees of charitable trusts can make informed investment decisions to preserve legacies, fund future projects, and meet the needs of
URL: https://financedigest.com/small-charities-should-not-shy-away-from-investing-for-social-goodhtml

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**John James**, Investment Manager, Thorntons Investments

You are a Trustee of a small charitable trust which receives a relatively substantial legacy. What do you do? The natural impulse might be to spend the money on good causes but, what if you could retain the lump sum and use the income to fund [future projects](https://www.financedigest.com/automotive-coolant-aftermarket-is-projected-to-exhibit-a-cagr-of-4-0-through-the-forecast-period-2020-2030-future-market-insights.html "Automotive coolant aftermarket is projected to exhibit a CAGR of 4.0% through the forecast period 2020-2030 – Future Market Insights")? This suggests a foray into the world of investments, an area that may be well out of the comfort zone of voluntary trustees, but well worth further investigation.

However, before making any decisions regarding investment, as a Trustee you should [consider how best the funds](https://www.financedigest.com/eu-considers-more-funds-for-eastern-states-in-bid-for-deal-on-russia-oil-ban.html "EU considers more funds for eastern states in bid for deal on Russia oil ban") can be applied to your own charitable aims and how this tallies with your current income and expenditure profile. Having weighed up the needs of [current and future](https://www.financedigest.com/organic-soy-products-market-outlook-current-and-future-industry-landscape-analysis-2029.html "Organic Soy Products Market Outlook, Current and Future Industry Landscape Analysis 2029") beneficiaries, it might be worth sketching out requirements in terms of capital outlay and income expectations to validate any project. Once you have a viable business plan which entails a sum of [money from which an income](https://www.financedigest.com/how-to-buy-income-producing-real-estate-without-your-own-money-or-credit.html "How to Buy Income-Producing Real Estate Without Your Own Money or Credit") is required, what happens next?

The OSCR website outlines the main duties of a Charity Trustee, governed by the Charities & Trustee [Investment (Scotland) Act 2005, in particular Part 3, Investment Powers](https://www.financedigest.com/rising-investments-in-renewable-power-generation-to-amplify-demand-of-substation-monitoring-system-market-fact-mr-report.html "Rising Investments in Renewable Power Generation to Amplify Demand of Substation Monitoring System Market: Fact.MR Report") of Trustees. The Act states that, before exercising the power of investment, the Trustee will consider suitability and the need for diversification appropriate to the circumstances of the Trust, and should obtain and consider proper advice.  If there is a suitably qualified Trustee on the board this may not be required, although it is generally considered prudent to receive 3rd party advice.

It is at this stage that the Trustees would consider appointing an investment manager, preferably one with experience of managing Charity portfolios. A good manager will be able to highlight the relationship between risk and [expected return](https://www.financedigest.com/lufthansa-expects-further-significant-improvement-after-return-to-profit.html "Lufthansa expects further ‘significant improvement’ after return to profit"), how different asset classes would be expected to react in different market conditions and provide guidance in portfolio construction. Ultimately, this can be used to draft an Investment Policy Statement, a document which outlines the trust’s aims and objectives as well as the constraints under which the manager [must operate](https://www.financedigest.com/true-operational-resilience-must-include-investing-in-esg.html "True operational resilience must include investing in ESG"). This would include a relevant benchmark against which the [performance of your portfolio](https://www.financedigest.com/three-fundamental-tips-to-enhance-your-investment-portfolio-performance.html "Three fundamental tips to enhance your investment portfolio performance") can be measured.

[Risk is part of the investment](https://www.financedigest.com/the-risks-and-rewards-of-investing-in-venture-capital.html "The Risks and Rewards of Investing in Venture Capital") process and tends to diminish over time. Trustees should consider holding cash to meet short term commitments, whereas as longer term commitments, where [inflation can erode spending](https://www.financedigest.com/dutch-to-spend-16-billion-to-cushion-effects-of-inflation-media.html "Dutch to spend billion to cushion effects of inflation -media") power, can be met using higher risk assets.

Whilst there is no specific guidance from OSCR regarding Risk in a portfolio, which tends to refer to the [volatility of an asset in terms of price](https://www.financedigest.com/italy-cpi-rises-again-in-april-amid-energy-prices-volatility.html "Italy CPI rises again in April amid energy prices volatility") and income, Trustees should consider if the portfolio will have a specific wind-up date or whether to distribute the income only. And on the topic of income, it is important decide whether to commit to fixed donations or to distribute free income.

Although Trustees are not directly responsible for the decisions made by the appointed investment manager, they are obliged to ensure that the [portfolio remains suitable for their investment](https://www.financedigest.com/investment-portfolio-diversification-why-its-important-and-how-to-do-it.html "Investment Portfolio Diversification: Why It’s Important and How to Do It") aims and objectives, which means regular meetings with the manager, monitoring performance against the agreed benchmark.

Properly managed, long term investment of a lump sum could effectively turn a legacy into the gift that keeps on giving by maximising your charitable donation.  This way you could bring about more projects for social good over time than would be possible by simply donating the entire pot of cash directly to deserving causes.


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