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appropriate level of risk they want for their charity or which they feel able
to accept. This consideration is part of the trustees’ duty of care – they must
be satis ed that the overall level of risk taking is right for their charity and
its bene ciaries. In the case of a religious institute charity this will be after considering the position of the charity and its nances here in the UK but it may also be with a view to the needs of the wider institute internationally.
Risk taking is essential in most activity so investing a charity’s funds is not about avoiding risk but recognising and managing it.
The aim is to ensure that if a loss materialises, the religious institute charity has properly identi ed and considered its management and so will be better protected.
Investment risk might result in a nancial loss but it could result in a loss of reputation – perhaps because the charity has invested in an unpopular or discredited company (the example of the Church of England and Wonga cited previously is relevant here!)
The level of risk that might be deemed acceptable will depend, in part, on the length of the period for which the funds are to be invested. Funds that are to be invested for the short or medium term will normally be invested in a relatively low risk manner as trustees will want to avoid sudden drops in capital. This aspect will be less of an issue for funds that are to be invested for the long term.
There are different types of risk to be considered and weighed up. The common types of risk are:
Ÿ Capital risk – i.e. the risk of loss of capital. All investments involve some degree of risk and all investment professionals will point out that investment values can go down as well as up! Generally speaking risk and return are inextricably linked - it is normally the case that the more risky the investment, the higher the potential return but also the higher the risk of loss. Therefore, balancing the level of risk and return within a portfolio is important
Ÿ Volatility risk – i.e. the risk of movements in the price of an asset (eg. share prices). Some investments are more volatile than others while some types of asset move in opposite directions – so when one investment falls, another increases. This type of risk, therefore, is often best managed through ensuring a diversi ed portfolio
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