When the reporting period arrives, most investment managers come with a glossy presentation pack in hand. Naturally, this means they can better manage the agenda and support the story they wish to tell.
Depending on experience of the board or perhaps familiarity with investments this can be daunting as much as it is vital.
With this in mind, it is important that trustees feel able to pose the right questions in order to ensure they discharge their duty of stewardship properly.
To help trustees in need of a framework, here are five key questions that should help elicit the right results for your progress meetings. Here are the first two questions I would ask:-
1) What investments have not performed as you expected and why have they performed the way they have?
2) Has the performance of the portfolio / investment made you question your original rationale for making the investment and if not why not?
Whilst it is great to hear about what has performed during this period, these two questions make your investment manager talk about their poor performers rather than just their successes. It also helps confirm they have reviewed the investment rationale for holding poor performing investments rather than simply hoping they will “come right”.
The next two questions are intended to ensure that the investment managers continue to manage your portfolios with your objectives and needs at the front of their mind.
3) How well has the longer term performance met aims set out in our investment policy?
4) Will our current strategy continue to meet those aims / what do we need to do in order to meet these aims?
These two questions are vital to the ongoing success of your charity. This investment aim is what your investment portfolio needs to deliver, regardless of what benchmark it is run against or what other investment managers are doing. If your charity needs to maintain the real value of its reserves and support a programme of spending or grant giving, this is more important than outperforming any benchmark or peer group; subjects that are often discussed with great gusto.
Question 4 in particular ensures that your investment manager needs to have considered whether your current strategy will continue to deliver returns which meet your charity’s stated aim. If the answer is “No”, because of changes in asset class returns or market valuations for example, it should trigger a review of the benchmark and a potential change in strategy.
My final key question is:-
5) What are the current threats to achieving the returns we need and how are they being mitigated in the portfolio?
This final question ensures that any discussion around markets and economies is relevant to your aims rather than a general discussion of global Macro Economic trends. It also ensures that you know what the risks are to achieving your aims, how those risks are being managed and hopefully mitigated in the portfolio.
In addition to my role at Psigma, I am an investment committee chairman for several charities. In honouring this responsibility, I always ensure our investment managers know in advance that these are the questions we would like them to address.
A good manager should be building the review around your needs so, perhaps delivering the a list of key questions in advance will help you and your fellow trustees deliver better outcomes for your charity and the needs of its beneficiaries
In closing, my final tip is to request the presentation is sent to the committee at least 48 hours in advance. This provides the opportunity to prepare any comments or relevant questions in advance. If you are handed it at the beginning of the meeting this task is impossible.
Andrew Wauchope is senior investment director at Psigma Investment Management.
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