Endowment fund and investment portfolio
The Endowment fund represents the original and subsequent gifts by Paul Hamlyn, both in his lifetime and under the terms of his will, together with the net gains arising from the related investment assets. The trustees have discretion to make disbursements from the Endowment fund in circumstances which they consider appropriate. Investment returns from the endowment investment portfolio are used to finance grant-making and other work.
The Foundation has wide investment powers which are specified in its Memorandum of Association. Investment policy is set by the Board of Trustees, but authority to decide strategy is delegated to the Finance and Investment Committee. The Committee, with input from senior staff and consultants, sets asset allocation and engages professional managers running a multi-asset, multi-manager portfolio. Most of the managers have discretionary mandates although the direct property portfolio is run on an advisory basis.
The Foundation’s investment policy is to:
- Maintain in the long run the real purchasing power of the Endowment fund
- Invest in a diverse range of assets which are most likely to give good total returns in the long term, in order to maximise the total real value of the amounts available for grant-making and other work
- Manage volatility as far as possible, while accepting that a degree of volatility is concomitant with seeking high returns.
In the year under review, the Finance and Investment Committee continued to increase the broad spread of investments whilst continuing modest commitment to hedge funds, venture/private equity investments and specialist cash and currency management. Whilst this continuing move into alternative assets is likely to reduce dividend and investment income at least in the short term, it is aimed at increasing total returns on a long-term basis and controlling the overall volatility of the portfolio.
Significant developments in the year included:
- Adding to cash held in the portfolio by reducing global and UK equity exposure in view of the deteriorating economic outlook
- Augmenting our investments in hedge funds by adding three new managers, including those who specialise in distressed debt
- Adding exposure on an opportunistic basis to new venture funds, as well as a commodity manager, and an emerging currency specialist investment vehicle
- Re-organising the Foundation’s bond holdings to more closely align with the selected benchmarks.
The main asset allocation changes to the Endowment fund during the year were:
- Reducing publicly quoted equities by allocating money away from equity managers. This, in combination with market falls, resulted in our equity allocation reducing from 56% to 40%. Combined with the defensive action taken in 2007/08, this helped protect the overall portfolio from the worst of the bear market
- In the summer of 2008, action was taken to protect the value of the portfolio by moving circa 49% of the cash assets held into US dollars and Euros. Subsequent to this, the Finance and Investment Committee established a formal currency neutral position for cash management going forward
- Overall exposure to property at year end was 5%, hedge and venture funds 10%, and fixed interest and cash 45%.
The Foundation’s endowment investment portfolio fell by about 9% for the year, mainly due to the fall in equity and property assets. At the end of the year the endowment’s value was broadly in line with the trustees’ aim of preserving its real purchasing power (ie: Paul Hamlyn’s bequests adjusted for RPI).
Grants awarded were lower than in 2007/08 (£13.4m compared with £14.5m) as decisions on some Special Initiatives were delayed until mid-2009 for operational reasons. However, overall awards on Special Initiatives have remained at 25% of all awards, excluding funding for the Helen Hamlyn Trust, as in 2007/08. The Foundation remains on course to achieve the trustees’ strategic objective to increase the proportion of expenditure on Special Initiatives in the current planning cycle (to 2012). Open Grants have consequently remained at 75% of awards made.Support cost expenditure has increased from £1.9m to £2.0m largely due to staff changes and recruitment costs. Investment management fees have reduced slightly in line with reductions in portfolio value.
The Foundation’s principal material financial risks, including foreign exchange exposures, relate to its investment portfolio and are in line with similar long-term endowment funds in the sector. Overall investment risk management is predicated on running a diversified portfolio of high quality assets across a wide variety of asset classes and markets. The longer term strategic asset mix is set by the Finance and Investment Committee, with input from Cambridge Associates and others. Individual investment mandates are awarded to specialist managers after scrutiny by the Finance and Investment Committee with input from various sources.
After five years as Finance Director, Jonathan Sheldon left Paul Hamlyn Foundation in 2008 to take up a position at the Health Foundation. I am grateful to him for his work. His resignation gave trustees the opportunity to think about the twin functions of Finance and Investments with the result that we have taken the opportunity to separate the roles. We have appointed Lucy Palfreyman as Finance and Resources Director and Richard Robinson as Investment Director. Both have long experience in their related but distinct areas of specialisation and we look forward to working with them.
Summarised financial statements
The summarised financial statements which follow are not the full annual report and financial statements but a summary of information derived from both the Foundation’s Statement of Financial Activities and Balance Sheet. The summarised financial statements do not contain full notes or a cashflow statement.
The full annual report and financial statements, from which the summarised financial statements are derived, were approved by the trustees on 30th June 2009 and copies have been filed with the Charity Commission and with the Registrar of Companies.
The independent auditors have issued an unqualified report on the full financial statements and on the consistency of the Directors’ Report with those financial statements. The statement in the independent auditors’ report, under section 253(3) of the Companies Act 1985, was unqualified.
The full annual report and financial statements are available from www.phf.org.uk or from the Company Secretary.
Chair, Finance and Investment Committee
Independent auditors’ statement to the members of Paul Hamlyn Foundation
We have examined the summarised financial statements, which comprise the Summary Statement of Financial Activities and Summary Balance Sheet set out on page 48.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the summarised annual financial statements in accordance with applicable United Kingdom law and the Statement of Recommended Practice: Accounting and Reporting for Charities (revised 2005).Our responsibility is to report to you our opinion on the consistency of the summarised financial statements with the full annual financial statements and their compliance with the relevant requirements of section 251 of the Companies Act 1985 and the regulations made thereunder. We also read the other information contained in the Yearbook and consider the implications for our statement if we become aware of any apparent misstatements or material inconsistencies with the summarised financial statements. This statement, including the opinion, has been prepared for and only for the company’s members as a body in accordance with section 251 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The maintenance and integrity of the Paul Hamlyn Foundation web site is the responsibility of the directors and the auditors accept no responsibility for any changes that may have occurred to the summarised financial statements since they were initially presented on the web site.
Basis of opinion and Opinion
We conducted our work in accordance with Bulletin 1999/6 issued by the Auditing Practices Board. Our report on the company’s full annual financial statements describes the basis of our audit opinion[s] on those financial statements and the Directors’ report. In our opinion the summarised financial statements are consistent with the full annual financial statements of Paul Hamlyn Foundation for the year ended 31st March 2009 and comply with the applicable requirements of section 251 of the Companies Act 1985, and the regulations made thereunder.
PricewaterhouseCoopers LLPChartered Accountants and Registered Auditors
30th June 2009