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1 AYPFNK T GPOWQ HFLAL RA IAFUA KJPAO NSPA RTNGI MSDUN RENCY GFNGA NFIVERHONVDUISNFAHD LKWOPRKJDGMJFKFGKKOIANVASPG J A G K L J FL G J F L F J A O IJ G J G FJ G J F P O N D H D J F K J FJ F J A D I RT U A O K G I YA G T RA NSPA RENCY 1 JJKFDHKNDJKSJJ HFL RICHARD JDU KAO MAITLAND PAI SWUND HEAD I OF FAJHA NFXVEI CHARITIES NFAHD LKWOPR SARASIN I & J PARTNERS NVASPG J A G K L J F L G J FL F J A O I H A D I RT U A O K G I YA G A D I RT U A O K G I YA G A SD G FA S 2 1

2 Overview Manage the tangible, known factors - Costs Understanding manager risk - Selecting managers and understanding the results What happens when Quantitative Easing ends - Managing bonds in a bear market What is risk? - One thing or many? Investing overseas - Why don t more charities allocate more? 3 Costs 4 A short history of investment management costs $% Commissions $% $% Commissions and fees $% $% $% Commissions, fees and interest rate strips $% $% $% $% $%! Commissions, fees, interest rate strips, fees within funds Commissions, fees, interest rate strips, fees within funds, performance fees, custody fees, vat, trail commissions. Commissions, fees, interest rate strips, fees within funds, performance fees, custody fees, vat, trail commissions 5 2

3 1 Invoiced / Quoted Fee.75 22,5 2 Performance Fee Might be charged on a segregated portfolio or within a fund in addition to annual fee 3 2% 4,5 Charged on segregated assets, holdings of 3rd party funds and within CIFs 4 Other Costs Associated with managing a CIF / OEIC 2,4 The other costs, that with the investment fee, go to making up the 'TER' of a fund 5 Initial Charge(s) We do not earn any initial charges when investing charity assets 11 (or more) points to consider 6 Commission We do not charge commissions 7 Investment in in-house funds (x.x%) 555 Rebate Investment in in-house funds (x.x%) % in Sarasin IE Real Estate Fund with.2% of other costs Investment in 3rd party funds 2,76 9.2% invested with average TER of 1% 9 Brokerage 1,13 Assumes equity allocation of 7%, turnover of 35% and.1% per transaction 1 Custody & Nominee Services These are included within Sarasin & Partners fees 11 Cash Assumes 2.5% allocation. We pay UK Base Rates less.15%. Across the interest rate cycle, this is not designed to make Sarasin & Partners a profit? Actual costs of investment management ,395? Revenue earned by investment manager.75 22,5? Revenues over quoted flat fee ( ).? Revenues above quoted flat fee (%).? Other costs, taxes and charges.36 1,895? Quoted TER if fully funded in Alpha CIFs.98 29,4 6 Manager selection 7 Manager selection matters QUALITY OF MANAGEMENT & PROCESS RISKS Is there an edge? Is it sustainable? Is it plausible? Style bias: when does it / does it not work? Discussion of past mistakes & lessons learned How active? Why:deep philosophical beliefs.or aiming to please? Challenge strategy and tactics Corporate - Unsettling - Changed focus People ambitious assets with legs Resources Scale Custody Degree of active investment THE TRACK RECORD CHECKS View it in the context of the process View in context of people Talent, style / asset bias: why? Performance Vs Absolute / RPI+ Performance Vs Benchmark Performance Vs Peer Group A record of what? Dispersions, averages and...is it what you would have been sold 5 years ago? Added value: strategy, tactics or both? Cross-check through multiple sources: - References - New clients - Old clients - Networking - Other professions: lawyers, accountants - Fund managers cannot hide from Google Plausibility Chemistry: trust, honesty, instincts A visit? 8 3

4 Dispersions across charity investment managers RANGE OF RETURNS FROM 1986 TO 214, THE WM TOTAL CHARITY PEER GROUP Source: WM Charity Index, Does manager selection matter always matter the same? HIGH SPREAD BETWEEN PERFORMANCE OF MANAGERS (23-212) US Gov t EM Debt Coporate Debt Lg-Cap Core Sm. Cap Core Emerging Markets Real Estate Hedge Funds Private Equity Source: Morningstar Top decile Bottom decile Decile performance spread Asset Class Talent Class 1 Benchmarking 11 4

5 Benchmarking 12 What are we seeking to achieve? 1. Make me money above inflation 3. Make more than the market 2. Make me more than anyone else 4. Make me money above inflation 13 What are we seeking to achieve? Strategy achieve absolute returns Implement strategy well CPI +?% Is the grass any greener? Bespoke, indexbased benchmarks Peer Group WM & ARC 14 5

6 Quantitative easing.and rising yields 15 Quantitative easing relative size of programmes RATIO OF BOND PURCHASES TO BOND SUPPLY WHAT THE PROGRAMME ENTAILS Committed to buying 6bn of bonds per month Bonds being bought are Asset-backed, covered and Governments Programme extends to September 216 Programme will amount to 1.1 trillion of purchases (FED programme amounted to c. US$2 trillion) Only buying programme countries (not Greece or Cyprus) Programme entitled PSPP Public Sector Purchase Programme 16 Interest rate policies can be negative now! SOURCE: MACROBOND, FEBRUARY 215 Global policy rates 17 6

7 % 6/5/215 A history of gilt yields Gilt Yield Duration UK 4 GILT YIELD CURVE A fall of 3.3% A fall of 1.2% A fall of 22.2% Bond B has a Duration of 1.2 years Bond C has a Duration of 22.2 years 1.5 Bond A has a Duration of 3.3 years Years Source: Bloomberg 19 Gross Redemption Yield BOND YIELDS Name Coupon Maturity Price UK Treasury 4.25 December 249 Running Yield % Gross Redemption Yield 2.5% UK Treasury 4.25 December % 2.% UK Treasury 1.75 September % 1.6% UK Treasury 8. June % 1.4% Are you are of the extent to which you are converting capital into income? 2 7

8 Price Price 6/5/215 Risk 21 Risk Is it volatility? HIGH VOLATILITY PORTFOLIO LOW VOLATILITY PORTFOLIO 3 3 Price Trend Price Trend Actual Price 5 Actual Price Time Time Source: Sarasin & Partners LLP Source: Sarasin & Partners LLP 22 Risk Is it being a forced seller? FTSE ALL SHARE TOTAL RETURN FROM 1983 TO FTSE All Share Index Source: Bloomberg 23 8

9 Risk Is it reputational? Invest But don t invest directly in.. Ah, but also screen funds - bonds, overseas equities and alternatives.transparency And what about bad practices and dodgy business Poor capitalism: engage and vote.and influence government and wider policy REQUIRED: a comprehensive ethical, stewardship policy 24 Investing overseas 25 Investing globally avoids sector concentration.and structural imbalances 26 9

10 Sterling a volatile currency 2.25 Sterling / Dollar Exchange Rate Has investing in -hedged global equities worked? Performance (GBP) UK Equities 49.3% Global Equities (ex UK) 66.8% Global Equities (ex UK - hedged) 73.6% Benchmark data source: UK Equities - FTSE All Share Index Benchmark data source: Global Equities - MSCI All Countries World Index ex UK and MSCI All Countries World Index ex UK Local Currency Period of data 31 st March 21 to 31 st March Conclusions Manage the tangible, known factors - Costs know them Understanding manager risk - Selecting managers and understanding the results an art, not a science.but some important do s and don t and knowing what it likely and possible What happens when Quantitative Easing ends - Managing bonds in a bear market it is going to happen at some point What is risk? - One thing or many? many and changing but can be managed Investing overseas - Why don t more charities allocate more? abilities, history.and misunderstandings 29 1

11 Important information This information has been issued by Sarasin & Partners LLP, a limited liability partnership registered in England and Wales with registered number OC329859, which is authorised and regulated by the UK Financial Conduct Authority and passported under MiFID to provide investment services in the Republic of Ireland. It has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and also of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated. Neither Sarasin & Partners LLP nor any other member of Bank J. Safra Sarasin Ltd. accepts liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The use of this document should not be regarded as a substitute for the exercise by the recipient of his or her own judgment. Sarasin & Partners LLP and/or any person connected with it may act upon or make use of the material referred to herein and/or any of the information upon which it is based, prior to publication of this document. If you are a private investor you should not rely on this document but should contact your professional adviser. 215 Sarasin & Partners LLP all rights reserved. This document can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact marketing@sarasin.co.uk. 3 11