Financial Review
Endowment fund and investment portfolio
The Endowment Fund represents the original gifts by Paul Hamlyn, both in his lifetime and under the terms of his will, together with net gains from related investment assets. The trustees have discretion to make disbursements from the endowment fund in circumstances they consider appropriate.
After the losses of the preceding financial year, 2009/10 was a period of solid recovery. Overall the Foundation made gains of £94.2 million as the global economy recovered. The total size of the fund rose to £563.7 million at 31 March 2010 from £478.5 million as at the previous year. The endowment fund received a small additional contribution during 2009/10 of approximately £252,000 from the additional winding up of the Paul Hamlyn estate.
The Foundation has wide investment powers which are specified in its Memorandum of Association. All trustees are involved in setting investment policy, but authority to decide strategy is delegated to the Finance and Investment Committee. The Finance and Investment Committee, with input from senior staff, consultants and Paul Hamlyn Foundation’s own Investment Director Richard Robinson, sets asset allocation and engages professional managers running its multi-asset, multi-manager portfolio. Most of the managers have discretionary mandates although use is made of advisory and passive funds.
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.
Whilst there was a sharp snap back upwards in equity market values in the year under review, the Finance and Investment Committee pursued a relatively cautious stance. They continued the policy of diversification by increasing the breadth of investments with continuing commitment to hedge funds, venture/private equity investments, specialist cash and currency management, as well as making additional specific commitments into equity markets and specialist bond markets. This continuing move into alternative assets is aimed at increasing total returns on a long-term basis and helping to control the overall volatility of the portfolio.
Significant developments in the year included: n
The retirement of Bob Boas, both as a trustee and as chairman of the Finance and Investment Committee. We are grateful to him for his wise guidance over many years
- Changing the mandate with PIMCO, one of our fixed interest managers, by exiting Government bonds in favour of investment grade corporate bonds, which were attractively priced and performed well in the year
- Completing a substantial ‘in specie’ transfer of our direct property portfolio into the leading specialist property unit trust
- Continuing to build up the Foundation’s inflation hedge portfolio with additional investments in commodities and index-linked bonds.
The main asset allocation changes to the endowment fund during the year were:
- Overall exposure to publicly quoted equities by year end was approximately 48%. The main focus of the listed equity portfolio is to large company stocks with good dividends. Whilst this did not maximise the performance in 2009/10 the Finance and Investment Committee felt that in the light of the ongoing challenges to the global economy, such a policy was prudent
- During the period under review the Committee maintained a significant exposure (over 50%) to non-sterling assets. The Committee monitors the currency exposure closely and is increasing its ability to manage it dynamically
- Overall exposure to other assets at year end was approximately as follows: hedge and venture funds 13%, property 5%, fixed income and cash 34%.
The Foundation’s endowment investment portfolio before spend rose by 21.7% for the year, making an overall advance, over these two years of very volatile markets, of approximately 14.9%. At the end of the year the value of the endowment was in advance of the trustees’ target of preserving the real value of its purchasing power (Paul Hamlyn’s bequests adjusted for RPI).
Expenditure
Grants awarded increased by £5.2m (40%) when compared with 2008/09. This was largely due to an expansion in Special Initiatives, where grants were made under the Learning Away, Learning Futures and Right Here programmes. Funding of Special Initiatives now represents 48% of all awards excluding funding for the Helen Hamlyn Trust, an increase from 25% in 2008/09 and in line with the Foundation’s strategic plan objective of moving to committing a greater proportion of funds to Special Initiatives than Open Grants in the plan timescale to 2012.
Support cost expenditure has reduced from £2.0m in 2008/09 to £1.88m, as some of the exceptional costs incurred last year when some elements of the staff team were re-organised have not been incurred in 2009/10.
Financial risk
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. The trustees consider the Foundation’s risk profile on a regular basis.
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 29 June 2010 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 Director’s 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.
Tim Bunting
Chairman, 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 its compliance with the relevant requirements of section 427 of the Companies Act 2006 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 427 of the Companies Act 2006 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.
We conducted our work in accordance with Bulletin 2008/3 issued by the Auditing Practices Board. Our report on the company’s full annual financial statements describes the basis of our audit opinion on those financial statements and the Directors’ report.
Opinion
In our opinion the summarised financial statements are consistent with the full annual financial statements of Paul Hamlyn Foundation for the year ended 31 March 2010 and comply with the applicable requirements of section 428 of the Companies Act 2006, and the regulations made thereunder.