Endowment Fund and Investment Portfolio
After a sharp retreat in spring 2012 most developed world markets made steady progress throughout the rest of the financial year. We continued our policy of being cautiously invested, thinking carefully about the overall risk budget we were prepared to take for every unit of return the portfolio was likely to earn. The Investment Committee continues to take the view that the impact of the international credit shortage will be prolonged sub-par growth. Overall, in a difficult year, the Foundation made gains of £58m from a portfolio exhibiting a low level of risk in both absolute and relative terms. The total size of the fund, including cash held in working capital, was £615 million at 31 March 2013.
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; and manage volatility as far as possible, while accepting that a degree of volatility is concomitant with seeking high returns.
We have maintained our policy that real spending at 3.5–4% pa is reasonable in the medium term although demanding in an era of low nominal returns. 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.
Marking our 25th anniversary in 2012/13, PHF Trustees decided to make available up to an additional £25m for ‘anniversary gifts’ divided between a limited number of organisations making a real impact in their areas of expertise. These are financed out of accumulated capital gains since the Foundation’s inception.
We continue to run a highly diversified portfolio. Overall exposure to equities is 50.8%. Alternative investments currently stand at around 22.8%. About 10.2% of the portfolio is in property and index linked bonds, as a hedge against inflation. Conventional bond exposure is low at 7.1%. The balance, about 9.1%, is held in liquid investments.
During the year we began to look at the pros and cons of incorporating some aspect of social investment into our process. The modified guidance from the Charity Commission for England and Wales in circular CC-14 is helpful in assisting in the decision making for ‘mixed motive’ investments. The Foundation has, in the main, kept grants and investments separate. With our own consultants we reviewed our governance practices and were satisfied that overall our investment procedures were robust and sensible.
Significant portfolio developments of the past year included:
- We began to sell down our position on both UK and global index linked bonds, which we had maintained as a hedge against inflation.
- We continued to fund our commitment to private equity, including venture.
- Our listed equities bias,towards the largest capitalisation companies, was rewarded. This trend may continue for some time although there is growing evidence that some exposure, on market weakness, to more value oriented stocks may be warranted.
- In property our core holding in the sector remains the specialist Charity Property Fund, which had a solid year.
- It was a decent year for our hedge fund portfolio. We continued to build out our exposure.
- We favoured the US dollar all year. As 2012 ended,sterling rallied but we have maintained our bias against our own currency. We are aware that currency plays a key role in investment returns and monitor our positions and decision making carefully.
The Foundation’s Endowment investment portfolio rose by +12.5% for the financial year to 31 March 2013, making an overall advance, over the last 3 years, of approximately +40.1%, in line with the trustees’ target of preserving the value of its purchasing power after taking into account spend and inflation.
Grants awarded before adjustments increased by 53% in 2012/13 when compared to 2011/12. This was because of the gifts awarded to mark the Foundation’s 25th anniversary (£11m in total). When this figure is excluded there is a reduction in expenditure on grants when compared to last year of approximately £1.68m although the number of grants awarded has increased from 150 to 180. Spending on Open Grants stayed at a similar level to 2011/12 and the majority of the reduction in year on year expenditure can be seen in Special Initiatives where the timing of activity over years is variable.
Support costs have increased by £467,000 when compared to last year, but 2011/12 contained an exceptional write-off of a previously accounted for dilapidations provision on the Foundation’s old office premises. When this is excluded, the increase is reduced to £272,000 (13%). This partly reflects some additional one-off costs around the 25th anniversary. 2012/13 was also the first year of full operation in our Leeke Street premises which brought with it some additional running costs when compared with previous years.
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 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
The full annual report and financial statements, from which the summarised financial statements are derived, were approved by the trustees on 27 June 2013 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.
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 64.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Yearbook 2012/13 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 2012/13 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 2012/13 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.
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 2013 and comply with the applicable requirements of section 428 of the Companies Act 2006, and the regulations made thereunder.
Chartered Accountants and Statutory Auditors London
27 June 2013
The maintenance and integrity of the Paul Hamlyn Foundation website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the full annual financial statements or the summarised financial statements since they were initially presented on the website.