Ethical dilemmas

Article Abstract:

Charities may wish to pursue an investment strategy in line with ethical concerns, and they also have to deliver good returns. Charities can use ethical funds, which means that they are constrained by the ethical criteria that the fund has selected. Charities can also set up their own customized investment portfolios, in line with their objectives and aims. Beneficiaries' interests are best served by high returns, and decisions to avoid specific investments have to be made in line with the charity's interests rather than those of the trustees.

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Measuring risk

Article Abstract:

Charities have to ensure that they can meet long-term obligations through their investments. They may use benchmarks in order to achieve this. They also have to boost returns as much as possible, while keeping risk at suitable levels. Standard deviation can be used to measure volatility and so risk. Tracking error is one way to describe how far returns vary in relation to benchmarks set by charities. Tracking errors can be estimated over quarters or months using standard deviation techniques.

Risk management

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The trustee's dilemma

Article Abstract:

United Kingdom charities have to decide whether to invest purely to obtain the best returns, or whether they should pursue a policy of socially responsible investments. Returns can be boosted by seeking capital growth rather than income, and technological and demographic changes will both affect the performance of profits and so opportunities for investment. Charities may be hit by adverse publicity if they invest in controversial areas, such as cancer charities if they invest in the tobacco industry.

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