Glossary

investment managers pick and choose investments aiming to buy and sell in order to achieve better financial returns. Active investing can also be used to implement a particular investment strategy, for example to focus on sustainable or impact-driven investments.

an arrangement in which an investment adviser makes recommendations about the charity’s portfolio but needs the charity’s permission before taking investment decisions, for example before buying or selling assets in the portfolio.

investments in an asset which does not fall into the common categories above (cash, shares, bonds), for example:

• private equity: where an investor buys a company to try to improve its performance in order to earn a profit when the business is sold
• venture capital: private equity but at an early stage in the company’s existence
• hedge funds: use a range of investment strategies to try to offset price risks of an existing investment, for example by investing some of the funds in the opposite direction to the fund’s main investments
• commodities: physical assets such as gold, oil or agricultural products. These are typically invested in via trading platforms or funds.
• infrastructure: assets such as bridges, roads, highways, sewage systems, or energy. These are typically invested in via trading platforms or funds.

Property (also known as real estate) is also sometimes classified as an alternative investment.

how investors divide their portfolios among different assets for example shares, fixed-income assets, and cash. Investors ordinarily aim to balance risks and rewards based on financial goals, risk appetite, and the investment horizon.

a grouping of investments that exhibit similar characteristics, such as shares, bonds and property.

resources a charity holds, for example cash in a bank account, property/land, an investment portfolio. ‘Investment assets’ typically refers to assets where the charity is seeking a return (for example a capital gain or income from shares or rental income from a commercial property) to spend on the charity’s activities. ‘Functional assets’ typically refers to assets which the charity uses to directly deliver its purposes (eg operating premises, almshouses).

charities might hold different bank accounts for different purposes, for example a current account for immediate spending needs and a savings account for monies which are needed in the near future but not immediately. The Financial Services Compensation Scheme (FSCS) generally protects charity deposits up to £85,000 per bank, building society or credit union.  Charities can use savings platforms (websites that work with selected banks and building societies) to more easily source and move between savings accounts. Funds held in a bank account count as investments.

typically only available to charities with a large amount to invest or willing to pay higher fees. An investment manager will create an investment portfolio tailored to the charity, this might include excluding or targeting particular companies or assets in line with the charity’s Investment Policy. This approach also allows the charity to make decisions about shareholder voting on companies within the portfolio. This approach is also referred to as having a 'segregated mandate'.

loans issued by a government or company to borrow money from investors, typically with interest payable and fixed repayment terms. ‘Gilts’ are bonds issued by the UK government, while US government bonds are called ‘treasury securities’ (or simply ‘treasuries’). Bonds normally pay the investor a set rate of interest over a given time period, at the end of which the amount borrowed (known as ‘the principal’) is repaid by the bond issuer.

the judgement delivered in 2022 explored ‘should charities...be able to adopt an investment policy that excludes many potential investments because the trustees consider that they conflict with their charitable purposes’. The case was between the Ashden Trust / Mark Leonard Trust and the Charity Commission.

Is the Charity’s Commission’s guidance on how trustees should make decisions about investing charity funds

increase in the underlying value of an asset over time, for example the increase in the price of a share or the value of a building. Investments can go down as well as up, when investments go down there is a capital loss. Capital gains and losses are typically realised at the point the assets are sold.

in charity investment ‘cash’ typically means monies in a bank account, common deposit fund or held as 'cash-like' investments. Charities may also hold small amounts of ‘petty cash’ in coins and notes.

investments which can be converted to cash easily. These investments will generally provide a higher return than on a bank account but are not protected by the Financial Services Compensation Scheme (FSCS). Examples include short-dated bonds (bonds issued by governments or companies that reach their maturity date in the near future, often within 2-3 months) and certificates of deposit (an agreement between a depositor and usually a bank where the bank offers a fixed rate of return over a specific short time period, there are penalties if money is taken out before the end of the time period). A common deposit fund typically holds money in both bank accounts and cash-like investments. Whilst shares could be considered 'cash-like' because they can quickly be sold and converted to cash, the value of shares can fluctuate which could lead to shares needing to be sold at a loss. In the Principles, shares are not included in 'cash-like' investments.

a term typically used in social investment to refer to making investments which are patient, risk-tolerant, concessionary, and flexible. The organisation receiving investment may be at an early-stage, delivering an innovative concept and might struggle to secure investment at commercial rates.

sets out how charities should prepare their accounts in accordance with the Financial Reporting Standard applicable in the UK. The Principles do not seek to set out all the requirements in the SORP and charity trustees/staff should consult the SORP when preparing accounts. SORP requirements include:

• reporting the financial performance of investments, investment management costs
• larger charities (income >£500k) to explain in the financial review "where the charity holds material financial investments, the extent (if any) to which it takes social, environmental or ethical considerations into account in its investment policy.

is the regulator of charities in England and Wales and maintains the charity register.

a practical tool to help charities and their trustees develop high standards of governance. The Principles follow the structure of the Code to help charities use them alongside each other.

all charities in England & Wales can make investments, and these powers usually come from the charity's governing document and/or the law. Investment is defined by the Charity Commission in the legal underpinning to its CC14 guidance to include “any outlay of funds in something which it is hoped will lead to a financial return” and notes the “wide range of strategies used by charities in employing their funds”.

The Principles refer throughout to the charity’s ‘purposes’, in line with the language used in CC14. The purposes will be set out in the charity’s governing documents. The purposes are often referred to as 'objects', and sometimes as 'objectives', 'aims' or 'mission'. In England and Wales the Charities Act 2011 defines a charitable purpose, explicitly, as one that falls within 13 descriptions of purposes (for example prevention or relief of poverty, the advancement of education) and is for the public benefit. All of a charity's activities, including making investments, are carried out with a view to furthering the charity's purposes.

a committee which reports to the board and has some involvement in the charity's investments. The committee may have delegated authority from the board to take certain decisions relating to investments and to provide oversight of the investments and/or any investment managers and advisers. Less frequently the committee will be advisory and will make recommendations to the board but not have any decision-making powers. The committee may be called the “Investment Committee”, “Finance Committee” or similar.

a registered charity into which other charities can invest money. Money from a number of charities is then invested together with the goal of providing a higher return than in a typical bank account. Charities can get instant access to their monies. The monies are not protected by the Financial Services Compensation Scheme (FSCS). The manager of the Common Deposit Fund will invest the monies in a range of ways for example call accounts (like a bank account but with a higher minimum balance which pays a higher rate of interest), term deposits (where monies can only be withdrawn after a fixed period) and gilts (a fixed interest loan issued by the UK government). As an alternative to a CDF, some investment managers provide a cash management service which seeks to provide a greater return than on a bank account.

decentralised digital assets such as crypto-currencies or non-fungible tokens would be considered alternative investments. The Charity Commission’s Internal financial controls for charities (CC8) guidance indicates that trustees should be aware of the many risks associated with crypto-assets.

whilst ultimate and collective responsibility for the charity’s investments remains with the trustees, trustees can entrust (‘delegate’) tasks and decisions to staff members, volunteers or professional advisers. Any delegation must be made in accordance with available statutory powers or power in the charity's governing document.

unrestricted funds which the Trustees have decided to set aside for a specific purpose

for example property, land or other assets such as art or musical instruments. The assets might be treated as a financial investment (for example where a charity owns an office building which is rented out to commercial tenants) or a social investment (for example where a charity owns an office building rented out to tenants with a social mission aligned to the charity’s purposes). The Principles deal with property held for investment purposes – to generate a return for spending on charitable purposes, either via capital gains or income. For clarity, this is referred to as ‘investment property’, a distinction from ‘charitable property/functional endowment’ (for example a charity’s operating premises or almshouses). Where a charity generates income or capital gains from its charitable property for spending on other aspects of the charity’s purposes then some of the Principles may need to be applied.

an arrangement in which an investment manager/adviser makes decisions within its discretion and judgement about the charity’s investment portfolio, for example which assets to buy and sell for the charity, on the charity’s behalf and in accordance with the agreed Investment Policy.

recognising, respecting and valuing people’s differences, and enabling them to contribute and realise their full potential within an inclusive culture. Among items to be considered in this context are gender, ethnicity, sexual orientation, religion or belief, social and cultural background and characteristics.

selling all or some of the holdings in a company. This could be because the company is underperforming or no longer aligns with investment objectives but is most commonly used to refer to the final selling of holdings when engagement targets haven’t been met by a company and/or where a company is considered to be acting in conflict with the purposes of a charity.

Equity, Diversity and Inclusion

considering environmental, social and governance factors when assessing investment opportunities, typically as a method of maximising the long-term value of a company. This approach will not necessarily avoid conflicts with the charity’s purposes, for example ESG ratings might rank tobacco companies against each other based on their environmental, social and governance performance but investing in any of these companies may still involve a conflict with the purposes of a health charity.

see shares

the Principles uses the term equity rather than equality. Equality means each individual or group being given the same resources or opportunities. Equity means recognising that each individual or group has different circumstances and allocating resources and opportunities will need to take account of an individual's circumstances to reach an equal outcome. (In investment terms, equity is also used to refer to shares, the Principles use the terms shares throughout to avoid confusion, though the term equities is used in quotes from other sources).

typically funds received from a donor/fundraising appeal which are then invested to produce a return (from income or capital growth) to spend on the charity’s purposes in line with any restrictions placed on the donation. Trustees can choose to spend the endowment if they wish and the value of the endowment does not need to be maintained permanently.

investing with the objective of making financial returns by generating income and/or increasing the value of the investment (capital growth). Charities have the power to make financial investments in order to further the charity’s purposes. As CC14 indicates, when making financial investments trustees should consider conflicts with those purposes, reputational risks and investment risk alongside the objective of making money.

typically used to refer to investment managers offering a pooled fund for charities to invest into, but is sometimes used interchangeably with investment manager.

explains how your charity is to be run and the purposes of the charity (these may be referred to as the ‘mission’, ‘objects’, objectives’ or ‘aims’). Submitted to the Charity Commission when the charity is set up, any changes must also be submitted to the Charity Commission. If you cannot locate the charity’s governing document, contact the Charity Commission. Depending on your charity type, the governing document may be a ‘constitution’, ‘memorandum and articles of association’, ‘trust deed or will’.

underlying holdings refers to each individual stock or bond in an investment portfolio. In a fund which is in turn invested in other funds, there can be tens or even hundreds of underlying holdings. In a large foundation investment portfolio with multiple funds, there could be thousands of underlying holdings.

typically refers to investments which aim to generate specific environmental or social benefits in addition to a financial return. These may be classified as financial or social investments depending on factors such as how closely the investment matches the charity's purposes. In addition to direct investing, some charities also undertake impact investing in secondary markets, for example buying shares in companies which contribute to solutions to environmental or social issues, or in order to take on an activist role to improve the company’s environmental or social practices (this is also referred to as responsible investment).

being proactive to make sure people of different backgrounds, experiences and identities feel welcomed, respected and fully able to participate. It is not only about creating a diverse environment but also about ensuring a culture exists where individuals can be their full selves.

typically an individual or organisation which can offer independent advice considering all of the available investment managers and products in the market. Services may include advice on investment and risk strategy; cash management; investment manager selection; investment monitoring and review. For some charities, typically larger ones, an investment adviser will select, monitor and review a range of investment managers and invest funds with selected managers on behalf of the charity.

money received from investments on an ongoing basis, for example interest paid on cash in a bank account, dividends paid on shares, rent paid on a building or interest paid on a bond.

typically an organisation which invests money on the charity’s behalf within the parameters set out in the charity’s investment policy. Services may also include advice on investment and risk strategy; cash management; investment monitoring and review but this advice will typically be restricted to products offered by the organisation. An investment manager might offer a pooled fund for charities to invest into and/or provide a bespoke portfolio service. The terms asset manager and wealth manager may also be used.

is typically used to refer to the formal instructions given by the trustees to the charity’s investment managers or advisers and/or the contract between the charity and its investment managers or advisers. Usually this will include confirmation that the investments will be managed in line with the investment policy.

sets out a charity's investment objectives and how it intends to achieve them. The written down policy is often referred to as an ‘Investment Policy Statement’. For smaller charities that mainly invest cash in a bank account, the investment policy may be included within an existing reserves or financial controls policy. For more information, see smaller charities that mainly invest cash.

refers to how easily an investment can be converted into cash. The more liquid an asset is, the easier it is to turn back into cash. Many charities, particularly those with different types of investments, will assess the ‘liquidity’ of their investments – shares traded on a stock exchange can typically be turned into cash very quickly, whereas land or property may take a while to sell.

the ‘nominal value’ of any asset stays the same over time – so a £100 gift a century ago would still have a ‘nominal value’ of £100 today. By contrast the 'real value' takes into account inflation, to buy the same amount of goods that you could buy with £100 a century ago would now require £5,000, so the 'real value' of £100 has decreased.

is seeking to minimise the amount of buying and selling to maximise returns. The most well-known passive approach is 'index' or ‘tracker’ funds which invest in all or a sample of the underlying holdings in an index. For example, the FTSE 100 is a share index of the top 100 companies by market capitalisation listed on the London Stock Exchange. The market capitalisation (or market cap) of a company is calculated by multiplying the total number of shares by the share price. A passive fund might invest in each of these 100 companies in proportion to its market cap, holding more shares in companies with a bigger market cap. ’Ethical’ tracker funds will screen out or change the proportion holding ('weighting') of certain companies or sectors, for example carbon intensive or tobacco companies.

typically for ‘investment’ permanent endowment, trustees need to aim to permanently maintain the value of the original gift. This is typically done by only spending the income produced by the endowment, or by adopting a total return approach (see below). Funds may be used for the charity’s overall purposes or for narrower purposes in accordance with the donor’s wishes. Typically for ‘functional’ permanent endowment, the endowment must be used for a specific purpose or the purposes of the charity and might include land, almshouses or historic buildings. There can be nuances around the rules for permanent endowment and restrictions can vary, if in doubt trustees should seek clarification from the Charity Commission or legal advice.

money from multiple charities, or multiple investors, is combined and invested into different assets such as shares, bonds and alternatives. The fund may invest directly or via other funds, for example in order to access specialist expertise in one sector or geography.

a collection of investments. The charity’s ‘portfolio’ could include a range of investments such as shares, bonds, properties or land.

primary markets typically refers to where shares (or other securities such as bonds) are sold directly to the investor rather than being traded among investors. Secondary markets refers to where shares (or other securities) are traded among investors. This can be an important consideration for those charities looking to maximise the impact of their investments. For example, investors may be less able to influence the behaviour of a company where shares are traded in a secondary market and another investor will replace them if they choose to sell their shares. Larger scale investor collaborations are likely to be needed to bring about change in secondary markets.

where this is referenced in the Principles it means a company providing professional advice or services to the charity in relation to its investments. The Principles and examples make clear where this is an investment manager or adviser, and where it is another type of provider, for example a property manager or bank. These companies are often listed as ‘Advisers’ in the charity annual report, the Principles avoid that term due to the risk of confusion with investment advisers. As explored in the Principles, advice on investments can also be given by a trustee or volunteer (typically a committee member) with relevant expertise and ability.

typically an individual or organisation which provides financial and investment advice regarding investment property owned by the charity.

in contrast to directly owning a specific property, a property fund will invest in a portfolio of properties, such as offices properties or student accommodation. Investors will typically receive monies from rental income and the increase in a property’s value.

public markets refers to investments being traded on a public exchange or stock market, for example the FTSE 100. Private markets are investments not traded on a public exchange or stock market, for example because they are owned by a family or are too small to be traded publicly. Social investments are typically made in private markets as the companies are too small or early stage to trade on public markets, or are concerned about dilution of their impact as a public company.

Recording decision-making is a key part of governance. Throughout the Principles where the outcome of a decision should be recorded in a specific place, for example in the annual accounts or investment policy, this is indicated. Some decisions will already be set out, for example in the charity's governing document. All other decisions can be recorded in the easiest manner for the charity, for example in a central record or in meeting minutes.

unrestricted funds available for spending (not including fixed assets used to carry out the charity’s activities such as a building, or social investments). The Principles focus on how reserves are invested. Charity Reserves

considering a range of factors when investing beyond financial returns, for example the company's approach to tackling environmental, social or governance (ESG) issues, or aiming to influence the companies invested in (also known as active ownership or stewardship). Reponsible investment takes into account the negative and positive impacts on people and the planet as seriously as financial risk and return.

typically funds which must be used for a particular purpose as determined by the wishes of the donor which is narrower than the overall charitable purposes.

the terms risk appetite and risk tolerance are often used interchangeably. Risk tolerance is typically the level of risk that the organisation can accept per individual risk, whereas risk appetite is the total risk an organisation can accept across the investment portfolio.

see risk appetite

typically refers to a portfolio avoiding investment in particular industries, or limiting the level of revenue which a company in the portfolio derives from a particular industry. For example a health charity might screen out all investment in tobacco and limit investment in any company which derives more than 10% of its revenues from selling junk food. This is sometimes referred to as 'negative screening'. By contrast 'positive screening' works to include those companies or industries which further the charity's purposes or create an enabling environment to further the purposes.

see bespoke portfolio

when shares are owned in a company, the individual or organisation which owns the shares ('the shareholder') can vote at the company's Annual General Meeting (AGM). Resolutions are put forward, typically on actions the company is taking such as the CEO's pay or adopting an environmental policy, and then shareholders can vote on the resolutions. Voting is usually undertaken by an investment manager on the charity's behalf.

units of ownership in a company. The terms ‘stocks’ and ‘shares’ are often used interchangeably – the company issues stock (multiple shares), which investors buy as shares. Shares can be in a listed company (also known as a ‘public’ company where shares can be traded on a stock exchange) or an unlisted company (also known as ‘private’ company where to sell shares the investor will need to find a willing buyer). By investing in shares, the investor may be hoping to receive dividends (a sum of money paid regularly by a company to its shareholders out of its profits or reserves) and/or to benefit financially from an increase in the share price. (The Principles use the terms shares throughout to avoid confusion with the use of 'equity' in the sense of 'Equity, Diversity and Inclusion').

investing in order to achieve the charity’s purposes directly through the investment and to make a financial return. The financial return required may intentionally be lower than the sum invested (a 'return of' investment rather than 'return on') but there is some expectation of a financial return. This is different to a grant where there is no expectation of a financial return. Social investments can be made into the charity’s own operations (for example purchasing an operating premises) or into other organisations (for example making a loan to a charity to buy a building, investing in shares in a social enterprise or investing in an impact fund which makes investments into businesses with a quantifiable social or environmental impact). Most charities in England & Wales can make social investments.

typically a charity with an endowment that has picked a time frame in which it plans to spend all of its endowment.

• Engagement is where an investment manager (or sometimes a charity itself) communicates through meetings, calls or written communications with the companies and funds into which investments are being made. Clear targets should have been identified such as changes in the company's business practice or workforce protections. There should also be an escalation strategy as to what will happen if targets aren’t met, including ultimately divestment (selling all the shares). Engagement can be undertaken at the individual charity level, collaboratively with other investors and at the service provider level by an investment manager.
• Stewardship is a broader process of working to maximise value from the  portfolio over the long term and improve practice through a range of methods,  including engagement, filing resolutions, voting at shareholder meetings,  influencing policy makers, contributing to research and participating in  public discourse.

involves a charity aiming to use all of its investments to generate a positive impact in line with the charity's purposes, alongside its grant-making or charitable programme delivery. This could include using responsible, impact and social investment approaches. A total impact approach will typically involve thinking about investments on a spectrum, with some investments very closely aligned to the charity's purposes and others which contribute more broadly towards the charity's purposes. A total impact approach can involve both financial and social investments.

allows trustees to spend both the capital gains on the endowment as well as the income. There are specific trustee duties for a charity with a permanent endowment adopting a total return approach.

this role should in almost all cases be undertaken by a trustee, and tasks will include monitoring the financial administration of the charity and overseeing the charity’s financial risk-management process. The Treasurer reports to the board of trustees who have collective ultimate oversight responsibility. The extent of the role will vary with the size and complexity of the charity’s operations.

a term used by some charities, in particular universities, to refer to the management of cash, near cash and other more liquid investments to ensure they have sufficient funds available to meet spending requirements.

individuals with control over, and legal responsibility for, a charity’s management and administration. The trustees carry out the charity’s purposes. May also be known as board members, directors, governors. Where the Principles refer to 'all trustees' these are actions which should be taken by the full board, both those with expertise in finance/investments and those with other areas of expertise.

short, medium and long term time horizons are explored in Principle 4. An ultra-long time horizon in charity investment typically refers to charities with a strategy to exist for 20+ years. This strategy might involve maintaining an endowment, fundraising for an endowment (as in the case of Community Foundations) or building sufficient reserves to ensure sustainability over the longer-term.

funds available to spend on activities that further any of the purposes of the charity

rises or falls in the value of an asset, extreme volatility can mean there are unpredictable and sometimes sharp movements in the value of an asset. Different assets have different levels of volatility.