We are aware that the Foundation’s mission or its credibility may be undermined if we invest in businesses whose activities undermine our values and grant-making objectives. Therefore, we follow a responsible approach to investment and are open to involvement with strategies with enhanced environmental, social and governance (ESG) impact as opposed to narrowly focused strategies which may have meaningful exposure to controversial areas. We believe that this approach is likely to improve alignment of the investment portfolio with its charitable objectives.
We use our grant-making to fund organisations advocating for systemic change, including ShareAction, ClientEarth and Global Justice Now. We are actively investing in new, innovative and alternative social and environmental models, such as community energy and land purchase initiatives, through our social investments.
The Foundation is also a signatory to the United Nations’ Principles for Responsible Investment (UNPRI). This initiative brings together an international network of investors who are committed to putting six key principles into action. As signatories we will:
The UNPRI Initiative has quickly become the leading global network for investors to publicly demonstrate their commitment to responsible investment, to collaborate and learn with their peers about the financial and investment implications of ESG issues, and to incorporate these factors into their investment decision-making and ownership practices.
The market value of the Foundation's investments at the end of 2016 was £1.0 billion (2015: £907.6 million), an increase of £92.4 million after spending. The portfolio’s annual total return of 15.9% (2015: 8.9%) outperformed the Foundation's long-term investment objective by 9.3% (2015: 3.7%).
Looking back on a one-year, three-year, five-year and since-inception annualised basis, the performance of the portfolio against our long-term investment objectives is as follows:
Our strategic target is to have 75% of our holdings in investments which will drive the long-term returns on the endowment (return drivers); 20% in holdings which will help to mitigate volatility over time (diversifiers); and a 5% allocation to cash for liquidity purposes.
The fall in the value of sterling following the UK’s decision to leave the EU had a significant impact on investment performance during 2016. The S&P 500 index, for example, was up 12% in dollar terms but rose 33.6% when converted back into sterling.
The portfolio was an overall beneficiary from the decline in the value of the Sterling as the majority of its investments are denominated in currencies other than sterling.
The fund benefited during 2016 from private equity and venture capital funds holdings although to a lesser extent than 2015. These funds have been maturing for a number of years and the valuations of the underlying investments were supported by buoyant US equity markets, particularly within the technology sector.
In terms of public equity markets, prices continued to rise during 2016 and stock market valuations appear stretched on a number of measures. While the low interest rate environment remains very supportive, the cycle will eventually turn and there are increasing signs that the bond market, in particular, is unlikely to perform as well in the coming years.
As a consequence, where appropriate, we have been taking profits in our return driver holdings and reinvesting the proceeds into new diversifying investments. We remain focused on identifying those managers who can best manage our capital over the long-term.
Our global equities were up 28% in sterling terms but lagged behind their benchmark slightly. This was also the case for our investments in emerging markets while our hedge funds were broadly in line with their targets.
The portfolio’s asset allocation at the end of the year was as follows:
03 October 2017
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Charity No. 200051