Long Term Investment Policy
| Owner: | Chief Finance Officer |
|---|---|
| Date of Approval of this Version: | 22 January 2024 |
| Committee Approved this Version: | Finance Committee |
| Date of Next Review: | January 2025 |
1. Overview
This policy document establishes the objectives and parameters for managing the University’s long-term investment funds. The market value of these funds at December 2023 was c.£18.9m.
2. Management
The Investment Committee, reporting to Finance Committee, is responsible for management of the long- term investment portfolio, development of investment strategy, appointment of investment managers and advisors, and performance monitoring.
Management of the long-term investment fund is assigned to investment management specialists, who are appointed by tender on a five year contract basis. Sarasin & Partners were appointed as investment managers on a three year plus two year option basis, with effect from 1st April 2020, following a tender process in 2019/20. The two-year extension period to 31st March 2025 was invoked by Investment Committee in 2023.
Independent specialist advice is also received by the University to monitor, review and report on the performance of the investment manager. Stanhope Consulting is the current appointed investment advisor to the University and has a five-year contract which runs from 1st September 2019 to 31st August 2024, with an additional two year extension period to 31st August 2026 invoked by Investment Committee in December 2023.
3. Investment objectives
- The investment objective (which is acknowledged to be a demanding target as at 14 December 2023) is to achieve a total return of CPI + 4% p.a. net of fees and costs over the longer term (rolling 5 years) to support financial obligations.
- There is no specific income target, and all income is
- The University is in a period of growth when we may wish to invest additional funds, the long term investment portfolio could be repurposed for such investments and therefore the majority of the assets should be reasonably liquid (within six months).
4. Risk tolerance
- The University is willing to accept some volatility to achieve its desired investment returns over the medium to long
- It would be prepared to accept potential losses of up to 15-20% in any one
5. Constraints
- Funds need to remain readily realisable if circumstances change.
- The University is exempt from UK Income and Capital Gains tax. Tax considerations are therefore not a constraint upon investment The portfolio will follow the policy of Sarasin Climate Active Endowments strategy as detailed below.
6. Strategic asset allocation/benchmark
The strategic asset allocation of the long-term portfolio was reviewed in the summer of 2019. The move of the portfolio management to Sarasin & Partners resulted in a higher allocation to overseas equities, a lower allocation to UK equities and a new allocation to UK commercial property. As of 1st April 2023, the University adopted a global approach to equities and the specific allocation to UK equities was removed, although investment in UK equities may still form part of the Global Equities portfolio.
The composition of the strategic asset allocation / benchmark is shown in the table below. This allocation is subject to revision following approval by the Investment Committee and will be updated accordingly.
| % | Previous allocation | New allocation | Permitted ranges | Benchmark indices |
|---|---|---|---|---|
| UK gilts | 5 | 5 | - | BofAML UK Gifts All Stocks |
| Index linked bonds | 5 | 5 | - | BofAML UK Index Linked All Stocks |
| Corporate bonds | 5 | 5 | - | BofAML Sterling Corporate & Collateralised Index |
| Total bonds | 15 | 15 | 5-30 | - |
| UK equities | 20 | - | 55-85 | MSCI UK IMI |
| Overseas equities (hedged) | 10 | - | 55-85 | MSCI ACWI ex UK (Local - GBP hedged) |
| Overseas equities | 40 | - | 55-85 | MSCI ACWI ex UK (Net Total Return) |
| Global equities (£ hedged) | - | 10 | 55-85 | MSCI ACWI (Local - GBP hedged) |
| Global equities | - | 60 | 55-85 | MSCI ACWI (Net Total Return) |
| Total equities | 70 | 70 | 55-85 | - |
| Property | 5 | 5 | 0-10 | MSCI All Balanced Property Funds (1Q lagged) |
| Alternatives | 10 | 10 | 10-20 | CPI+1% |
| Total | 100 | 100 | - | - |
The investment manager’s objective is to outperform the benchmark by at least 1% per annum (net of fees) over three-year rolling periods.
7. Socially responsible investment and sustainability
The University is committed to sustainability. The University’s Strategic Mission is defined as, “To drive sustainable social and economic development through outstanding teaching, research and innovation.” Its Strategic Objectives include, “We will have embedded a consideration of our contribution to the UN Sustainable Development Goals into all aspects of our research, learning, teaching and operations.”
This Investment Policy is designed to support the University’s overarching ambition for sustainability.
The University expects its investment managers to manage the portfolio in line with best practice in terms of environmental, social and corporate governance (ESG) issues. Positive investment screening opportunities will be considered on a continual basis to tailor the approach further as and when appropriate.
Accordingly, Sarasin & Partners will pursue its “Climate Active” strategy for security selection while the strategic asset allocation will remain bespoke to the University, as set out in the section above.
The Climate Active strategy is designed for investors who are seeking attractive and sustainable investment returns by investing in a way that is aligned with the Paris Climate Accord, keeping temperature increases well below 2°C and ideally 1.5°C while also pushing companies to align with the Paris goals.
Specific features of the approach by the University are :-
- no investment in companies engaged in fossil fuel extraction.
- following engagement, no investment in companies that needlessly emit significant quantities of carbon into the atmosphere, or which do not take seriously the transition to a low carbon
- no investment in companies engaged in tobacco production and manufacturing of tobacco-related products, with this noted as being achievable due to the discrete nature of tobacco companies.
- no investment in companies whose core mode of operation is in the manufacture / trading of arms, alcohol, gambling and It is noted that some companies, for example hotel chains, may derive some of their income from alcohol and gambling, but this is not their core mode of operation. These activities will not be considered core modes of operation where turnover derived from such activities is less than a 5% threshold. This objective will be delivered through Sarasin’s ethical investment framework, which in practice results in less than 2% of turnover being derived from such activities.
- qualitative judgements to be considered on a regular basis by the Climate Active Advisory
The above provisions exclude c.5 - 10% of companies in the MSCI All Countries World Index. Sarasin & Partners does not consider the restrictions to be too material that it would impact negatively on longer-term investment performance.
All third-party funds owned are screened on initial purchase and are reviewed on a regular basis to make sure they adhere to these rules.
Further investments and divestments are subject to a case-by-case assessment depending on the vulnerability of each company to climate change, and whether it will be able to develop a climate-aware strategy that will deliver attractive long-term returns for shareholders.
The University has a free-standing Sustainable Investment Portfolio valued at £0.8m as at December 2023, which is invested in the Impax Environmental Markets Fund. This is held in a non-discretionary portfolio by the Investment Manager. In December 2023, the Investment Committee agreed to increase the allocation to the Sustainable Investment Portfolio to 10% of the whole portfolio and to add another fund, Ninety One Global Environment Fund, in the interests of manager diversification. This will be carried out in early 2024.
In the interests of transparency, the University will produce twice annually a list of all companies and funds in which long term investment funds are invested. This list will be available on request from the University’s Chief Finance Officer.
Any representative body within the University (i.e. Student Union, Trade Union or Committee) may draw attention to any investment in a company or fund that is considered to be unethical, socially or environmentally irresponsible. Representations should only be made based on evidence that a company’s activities or values are clearly far removed from the University’s core values and that these give serious grounds for concern.
The Investment Committee will consider any representations in consultation with the appointed Investment Manager against the following criteria:
- Is the complaint substantiated?
- Is it contrary to the University’s values, goals or mission?
- Is it of significant wider social, environmental or humanitarian concern?
- What is its impact on portfolio risk, diversification and returns?
The Investment Committee will make the final decision to continue or discontinue with any investment and will communicate the reasons for this to the group raising the concern.
8. Policy review
This policy will be subject to annual review by the Investment Committee.