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How do you measure success?

Finance | 1 May 2006

Charity investors were called on to assess the appropriateness of their benchmarks to ensure they are measuring the success of investments in line with their objectives.

During the closing panel debate at the Charity Investment Forum 2006, representatives from the five sponsors were invited to briefly present their views on how best charities measure the success of their investment returns. Should charities look to outperform peer group benchmarks or is their success better measured by whether they achieve the return necessary to pursue their objectives irrespective of what the benchmark is?

Jamie Korner, a director of investment management at Newton, pointed out that the time horizon of a charity’s liabilities determines its benchmark and that all portfolios should have benchmarks in line with their aspirations.

Ross Watson, charity investment director at Martin Currie, said that whatever benchmark they deemed appropriate, it was vital that charities pay attention to it or risk confusion.

Jeremy Wells, head of charities investment at JPMorgan Asset Management, pointed to the findings of its recent annual charity investment industry survey as evidence that charities had already decided that peer group measures were not the best way of measuring success. The survey revealed that three quarters of respondents manage against market set benchmarks compared to 18 per cent using peer group methods. In its survey three years ago the figures were 37 and 55 per cent respectively.

Avinash Persaud from GAM added that the benchmark of success was maximising the benefit of assets within the constraints of the future and meeting liabilities, and that peer measures are not a good way of doing it.

Finally, Andrew Hunter Johnston, a managing director at Merrill Lynch Investment Managers, said that there was perhaps still a role for peer group benchmarks as they might help explain what charities are missing from their portfolio and can shed light on how others are doing. He concluded by warning: ‘Don’t be recklessly conservative. It’s about spending as well as making money.’ 

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