by Ruadhri Duncan, Partner, Sarasin and Partners
Trustees have much to consider when it comes to overseeing their investments. Each new generation of investors believes they can outperform the last, yet history proves that the fundamentals of sound investing rarely change. While financial markets evolve, successful long-term strategies remain remarkably consistent. Trustees overseeing charitable investment portfolios should prioritise principles that stand the test of time rather than getting distracted by fleeting trends. Here we offer some thoughts on the enduring trends that we believe are critical to long-term investment success.
Stay Invested Through Market Cycles
Market volatility is inevitable, and downturns can be deeply unsettling. However, long-term investors should resist panic selling. Historically, markets recover, and those who exit during downturns often crystallise losses, missing the subsequent rebound. A prior appreciation of the more emotive, behavioural risks of investing, and a clear, simple and well-understood Investment Policy document, should hopefully mitigate the risk of ill-timed decision making.
Think Long Term, Avoid Short-Term Noise
Most charities invest for the long haul, yet the temptation to switch investment strategies based on short-term performance is ever-present. Investment approaches often take years to prove their worth, and even the most successful managers will experience periods of underperformance. Indeed, those that are true to their style and approach will inevitably have periods of relative difficulty. Staying the course with a well-structured investment strategy is far more effective than reacting to temporary setbacks.
Appropriate Diversification Matters
While equities have historically delivered strong long-term returns, an overconcentration in any single asset class exposes a portfolio to undue risk. Diversification across asset classes such as equities, bonds and alternative investments provides a buffer against volatility and enhances resilience. Trustees should also consider liquidity needs, ensuring that sufficient cash is available for operational requirements & short-term liabilities, without being forced to sell investments at an inopportune moment.
Evolution, Not Revolution
New asset classes and investment techniques emerge regularly, often accompanied by much hype & fanfare. While innovation can add value, trustees should integrate new strategies gradually and thoughtfully rather than making sweeping changes. A steady, incremental approach allows for learning and adaptation, without jeopardising the portfolio’s long-term stability.
Manage Costs and Prioritise Service
Future investment returns are uncertain, but costs are a known factor. Excessive fees erode long-term gains, so trustees should seek cost-effective solutions that do not compromise quality. Beyond costs, strong governance, clear reporting, and good service from investment managers contribute significantly to a prosperous and long-lasting relationship.
Understand the Role of Luck and Judgment
Even the best investors acknowledge that market forces, sentiment, and external shocks play a role in investment outcomes. While thorough analysis and disciplined decision-making improve the odds of success, not every outcome will be favourable. The key is to distinguish between poor judgment and bad luck—learning from both without overreacting to temporary setbacks.
