How we invest

Guiding philosophy

How we define investment risk

We define investment risk principally as the danger of failing to meet its prime objective i.e. to ensure consistent funding of the Esmée’s mission for decades to come (by preserving the real value after spending). It is exposed to both:

• uncertainty - no-one knows what the best investments will be over the next 20 years; and also to
• volatility - shorter term fluctuations in asset values.

Volatility is a threat to preserving value only if Esmée becomes a forced seller of assets at unfavourable prices.

Long-term and independent investing

We are a long-term independent investor willing, where necessary, to be different from the crowd. It is of a size (neither too big nor too small) at which it can take advantage of the additional returns and diversification available from unusual, complex or illiquid strategies; these are not available to investors with a shorter horizon or greater focus on managing short term benchmark risk.

Transparency

We are aware that our mission or our credibility may be undermined if we invest in businesses whose activities undermine our values and impact objectives. Given this, transparency is very important in identifying where conflicts may arise. We will seek to avoid narrowly focused strategies which may have meaningful exposure to such controversial areas. And we are committed to involvement in strategies with enhanced environmental, social or governance (ESG) impact.

Alignment with our funding

We are willing to engage with businesses and asset managers to align outcomes with our grant-making priorities but will avoid excess complexity or devaluing its impact by untargeted, unrealistic or numerous initiatives.

Strategic oversight

Our core expertise is in funding. Therefore we have chosen to seek external advice in the areas of endowment strategy, asset allocation, manager selection and due diligence. However, we retain final decision rights - it remains essential that we have both Trustee and Executive investment expertise in order to provide effective strategic oversight of the adviser(s). It is also important for all Trustees to have a broad understanding of the investment strategy and its implications.

Climate Change and Diversity, Equity and Inclusion

Climate change and Diversity, Equity and Inclusion are key parts of Esmée’s 2020-2027 strategy. We are interested in identifying managers who are taking action in these areas and demonstrating leadership. We support initiatives which aim to increase alignment between the investment services industry and the Paris climate change accord.