Contents

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. Investment returns from the Endowment investment portfolio are used to finance grant-making and other work.

After the gains of the preceding financial year, 2010/11 was a period of continued recovery, although the increase in global inflation suggests greater caution may be appropriate in the coming months. Overall the Foundation made gains of £20.1m as the markets recovered. The total size of the fund rose to £574.8 million at 31 March 2011. The Endowment Fund received a small additional contribution during 2010/11 of £5.7m from the further winding up of the Paul Hamlyn estate.

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.

During the year under review, within the portfolio itself, the Finance and Investment Committee continued to pursue a relatively cautious stance. They continued the policy of diversification by increasing the breadth of investments with ongoing commitments 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.

Among the significant developments in the year:

  • We sold our corporate bonds after having made a good return. In view of the likelihood of rising interest rates we moved the money into an ‘unconstrained’ bond strategy run by PIMCO with no implicit duration in its benchmark.
  • We amended our global equity line-up by appointing Harding Loevner as a manager. Additionally we established a directly invested portfolio of the largest capitalisation global companies. We perceive that these have attractive total return characteristics.
  • We moved our ‘indirect’ property exposure into a fund of funds run by Aviva, which provides both liquidity and a higher degree of active management. By the end of the year we had arranged to sell our last directly held UK property, a process of portfolio reorganisation we began the year before with the move of most assets into the Charity Property Fund.
  • We continued to build out our exposure to hedge funds and venture, including exposure to Asia. We continue to benefit from advice from Cambridge Associates in structuring our alternatives portfolio.
  • After reflection we decided to adopt a 50/50 sterling/ non-sterling currency neutral position, around which, within guidelines, we manage currency exposures.
  • The main asset allocation changes to the Endowment Fund during the year were:
  • Overall exposure to publicly quoted equities by year-end was 48%, little changed from the previous year. The main focus of the listed equity portfolio remains large capitalisation stocks with good dividends. Whilst these lagged the broad equity indices in 2010/11 the Investment Committee felt that in light of their cautious market outlook, such a policy was appropriate.
  • Hedge fund and other absolute return type investments were increased, rising from 13% of assets to 15% by year-end.
  • With a diversification of approaches within the fixed interest portfolio and addition to real assets and venture, cash and fixed interest overall was reduced from about 34% to 28%.

When adjusted by the amount spent on grants and costs in the year, the Foundation’s Endowment investment portfolio rose by +6.1% for the financial year, making an overall advance before spend over the last three years of approximately +18.3%. 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. This calculation is made by adjusting Paul Hamlyn’s bequests over time for RPI, net of grants.

Expenditure

Grants awarded before adjustments fell by 16% in 2010/11 when compared with 2009/10 as was anticipated in the Foundation’s annual plan. The timing of major awards under several Special Initiatives, particularly in the Education and Learning and Social Justice programmes, means that expenditure has been phased to fall in later years.

Consequently, Special Initiative expenditure as a percentage of grant expenditure (excluding Helen Hamlyn Trust) reduced to 22%. In keeping with our strategic plan, expenditure in India increased to over £1m.

Support cost expenditure has increased by 11% (£211,000) but the largest element of this increase has been the exceptional costs associated with the purchase and refurbishment of new premises. Costs of supporting grant operations have increased by £55,000, primarily due to the costs of the first full year of running the India office. Reductions in costs can be seen in the communications and governance areas where some one-off projects undertaken in 2009/10 have not been repeated.

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. 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 any additional information. The full annual report and financial statements, from which the summarised financial statements are derived, were approved by the trustees on 5 July 2011 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 496 of the Companies Act 2006, was unqualified. The full independent auditors’ report contained no statement under sections 498(2)(a) and (b) or 498(3) of the Companies Act 2006. 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 the Summary Balance Sheet set out on page 55.

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 within the summarised annual 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 2011 and comply with the applicable requirements of section 428 of the Companies Act 2006, and the regulations made thereunder.

PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 5 July 2011