Page 116 - Demo

Ÿ Liquidity risk- i.e. the risk that funds are needed to be converted in to cash at short notice. Some types of investment are inevitably less liquid than others. The obvious example is where a charity’s money has been used
to purchase property which will take time to market and sell. This type
of risk is managed by considering carefully the characteristics of different investments
Ÿ Market risk. There are different types of market risk including in ation; interest rates; exchange rates; regulatory and governance risk (especially in certain overseas countries) etc.
The key strategy to be followed by charity trustees is to review the charity’s overall nancial position and to consider how they should be using their charity’s assets to achieve its long term objectives. This will involve considering different time horizons, the charity’s nancial commitments as well as income requirements. For religious institute charities, nancial commitments will be high in terms of looking after the members of the institute for the remainder
of their lives. Chapter four sets out illustrations of the type of funding that may be needed over the medium to longer term simply to meet the cost of care for older and frail members. The tension that exists between the need to generate income today to meet increasing costs and the need to retain capital value is not an easy one to manage – especially as the time horizon cannot be identi ed accurately and may in some cases be a period of up to 30 years or more. This aspect needs a proper understanding by the charity’s trustees and by the charity’s investment managers. As noted above, the art of managing
the investments of a religious institute charity is more akin to managing the investments of a pension fund than those of a “mainstream” charity. Despite this, care is needed to ensure that short and medium term nancial needs have been quanti ed and that an appropriate investment strategy adopted – the last thing any charity wants to be is a “forced seller” – the aim has to be to invest low, sell high.
Religious institute charity trustees may wish to refer to chapter four where we discuss the need for nancial planning, set out some of the key questions to be asked and highlight the cost of care. This will help inform the responses to the following questions that need to be asked when considering investment strategy and how it relates to investment risk:
Ÿ The charity’s immediate needs (next 12 to 24 months) – the cash that needs to be easily accessible and suf cient to meet requirements
Ÿ The charity’s future spending commitments (next three to ve years) – the 112 Chapter 6