Financial review

Investment Review

In terms of markets, we are, to a certain extent, in uncharted waters. Since 2009 Central Banks have injected unprecedented amounts of money into the world’s economies to help stimulate growth. Interest rates may soon start to normalise. The liquidity tap is being turned off.

After strong returns in 2012 and into 2013, this year markets reacted differently to this prospect. There was a bifurcation in market returns between the developed economies that overall made forward progress and the markets of the developing world that were in sharp retreat. At PHF we continued with our policy of being cautiously invested and as a committee we thought carefully about not only trying to maximise returns but about our overall risk budget. The total size of the fund was £615.5m at 31 March 2014.

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.

Our policy is that real spending at 3.5–4% pa is reasonable in the medium term, although demanding in an era of low nominal returns. Review of this work is ongoing, 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.

The Finance and Investment Committee continues to run a highly diversified portfolio. Overall exposure to equities was 47% versus 51% last year. Alternative investments currently stand at around 28% of the portfolio versus 22.8% last year. About 9% of the portfolio is in property and index-linked bonds versus 10% last year. Conventional bond exposure is low at 7%, unchanged from last year. The balance of the portfolio, 9%, the same as last year, is held in liquid investments.

During the summer of 2013 we carried out a major investment review. We looked at: short, medium and long- term performance, both in absolute numbers and against peers; the pros and cons of the classic ‘Endowment’, the multi-asset model, what it costs and how it behaves; our existing roster of investment managers and some possible changes; our supplier partners and advisors including our lead consultant firm; what we do and how we do it from the perspective of our governance structure.

Portfolio developments in the past year were as follows:

• We sold the last of our UK index-linked bonds as they had become very richly priced.
• We continued to fund our commitment to private equity, including venture. This is beginning to return cash.
• Our listed equities bias continued to be weighted towards the largest capitalisation companies. Overall we made two changes of manager amongst our long-only portfolio, which was more than usual and reflects the strategic review.
• In property our core holding remains the specialist Charity Property Fund, which had another solid year. We managed to find liquidity for one of our small European closed end property funds which have been disappointing from the outset.
• Our hedge fund portfolio continued to prosper, outperforming its medium term benchmark. We continued to build out its exposure, and changed three managers.
• In a year when sterling trended stronger, we held too many US dollar denominated investments and this modestly hurt our overall return. We reviewed our currency management strategy and operating procedure.
• European equity manager Rod Jack joined our Investment Committee as a special advisor, sitting alongside Simon Gillis, Paul Woolley and Lord Gavron.

During the year, we decided to offer a loan to one organisation which is also a current grantee – BeatBullying – and this is reported as a programme related investment in the balance sheet. As part of its strategy review, the Foundation is considering whether it wishes to pursue programme-related investment in a wider way.

The Foundation’s Endowment investment portfolio rose by +4% for the financial year to 31 March 2014. Over the last five years to 31 March 2014 PHF has advanced by +56.3% versus an advance of our putative benchmark (UK Retail Prices Index plus 4% pa) of +45.7%.

Expenditure

Grants awarded before adjustments fell by 26% compared with 2012/13 but 2012/13 was an exceptional year as it included c£11m of grants to mark the Foundation’s 25th anniversary. When 25th Anniversary gifts are excluded in both 2012/13 and 2013/14 the year-on-year change in grants awarded is an increase in expenditure of 2% (£378,000 approx) in 2013/14. Open Grant spend has reduced by £1.5m compared with 2012/13 but Special Initiative expenditure increased by £1.8m, largely due to the launch of round two of the Breakthrough Fund in 2013/14.

Support costs have reduced by 3% (£85,000) when compared with 2012/13, largely due to some cost savings and changes in patterns of expenditure.

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 the Foundation’s 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 8 July 2014 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 free from www.phf.org.uk.

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.

Respective responsibilities of directors and auditors

The directors are responsible for preparing the Yearbook 2013/14 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 2013/14 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 2013/14 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 2014 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 2014

Note:

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.