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 a recovery in portfolio value over the preceding 12 months we had determined that greater caution was warranted. This stance led the Foundation to make modest gains of £1.97m from a portfolio exhibiting very low levels of risk in both absolute and relative terms. The total size of the fund, including cash held in working capital, was £572m at 31 March 2012.

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 2011 trustees accepted the recommendation of the Investment Committee, that after a detailed review, real spending at 3.5–4% pa would be reasonable in the medium term. Ongoing review of this work will be undertaken, particularly if markets prove to be unrewarding over a period of years, although any decision to alter the agreed level of spending would not be taken lightly.

Significant portfolio developments in the past year included:

• We sold all our conventional UK Government bonds. In view of the likelihood of rising interest yields we have maintained our exposure to both UK and global index linked bonds as a hedge against inflation.
• Whilst there were no changes to our listed equity managers, we continued to fund our commitment to private equity, including venture. This includes now partnership with a leading specialist in China as well as some very early stage US managers. Our portfolio, whilst young, is beginning to return cash.
• Last year we moved to increase the orientation of our listed equities to the largest capitalisation companies and in the year under review this was rewarded. In the developed markets all our managers outperformed their benchmark indices.
• We simplified our property holdings by moving to redeem our real estate fund of funds in the UK. The last of our directly held properties was sold. Our core holding in the sector remains the specialist Charity Property Fund.
• In a mixed year within hedge funds, the Foundation continued to build out its exposure and within sharp variations in actual performance of managers closed the year ahead of our benchmark index overall.
• For some of the year we hedged back some of our US dollar exposures into sterling as we actively manage our currency exposure to a 50/50 sterling/non-sterling neutral position. In September 2011 we bought more US dollars.

When adjusted by the amount spent on grants and costs in the year, the Foundation’s Endowment investment portfolio rose by +1.9% for the financial year to 31 March 2012, making an overall advance, over the last three years of approximately +31.4%. 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 increased by 13% in 2011/12 when compared to 2010/11. The increase is in keeping with the Foundation’s strategic plan as Open Grant funding has increased by 8% and spending on several Special Initiatives, initially planned for 10/11, was re-phased to fall in 11/12. Special Initiative expenditure as a percentage of grant expenditure (excluding Helen Hamlyn Trust) increased to 26% of grant spend and Open Grants decreased to 74%.

Support cost expenditure has decreased by £87,000 but this includes an exceptional accounting adjustment for the reduction in provision for dilapidations on the Foundation’s previous office premises and provision for rent to the end of the lease. When this is adjusted for, the underlying trend is for an increase in support costs of 2% (£49,000). In March 2011 trustees decided to increase the staffing capacity of the organisation and from September 2011 three additional posts were added to the grant-making teams and one to the support functions. This has resulted in increases in staffing costs (£145,000 approx) and operational support expenditure (£36,000). During 2011/12 the Foundation undertook the refurbishment and fit-out of new premises. The majority of these costs have been capitalised and as the Foundation only moved office in February 2012, the accounts for 2011/12 only show a limited impact on depreciation.

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

Trustees’ statement

The summarised financial statements 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 contain additional information derived from the Directors’ report, but that information is not the full text of that report.

The full annual report and financial statements, from which the summarised financial statements are derived, were approved by the trustees on 10 July 2012 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 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 Balance Sheet set out on page 55.

Respective responsibilities of directors and auditors

The directors are responsible for preparing the Yearbook 2011/12 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 Yearbook 2011/12 with the full annual financial statements and the Directors’ report 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 2011/12 and consider the implications for our statement if we become aware of any apparent misstatements or material inconsistencies with the summarised financial statements. The other information comprises only the chairman’s statement and the other items listed on the contents page.

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 and the Directors’ report of Paul Hamlyn Foundation for the year ended 31 March 2012 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
10 July 2012