Investment for charities. Good thinking. Well applied.

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1 Investment for charities Good thinking. Well applied. 1

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3 Balancing capital preservation and income generation Royal London Asset Management (RLAM) has around 200 charity clients from a wide variety of areas, including medical, religious and educational foundations. We are proud to manage over 3 billion on their behalf. Our parent company, Royal London Group, is the UK s largest mutual life and pensions company; through shared values, we believe that our mutuality helps us in our dealings with charities. Investing for the benefit of charities We invest in a range of assets, as detailed overleaf, although it is not necessarily one asset class that delivers your requirements. It is the combination of listening to your needs, both now and in the future, and through careful asset allocation constructing a portfolio that will Our clients are at the heart of what we do and we understand that charities are under considerable pressure to ensure that their investment objectives are met, and that the income from their investments is of paramount importance. It is therefore vital to maintain the optimum balance between capital preservation and income generation. As a charity trustee or adviser, you need to be confident that your charity s assets are being managed to your agreed mandate by experienced and trusted investment professionals. best meet them. We recognise that your main focus is your charitable activity; ours is to construct the best possible investment portfolio with the lowest level of risk, to enable you to carry out this activity. There is an element of risk in all portfolios; working together in partnership allows us to fully explain those risks. Different charities want different solutions to their challenges; some want to match inflation, while others may have specific annual target returns or want a high Our experienced team works closely with our charity clients to develop long-term relationships. We take the time to fully understand their desired return, attitude to risk, timescales, income requirements and ethical stance. This enables us to agree a benchmark, determine an investment strategy and construct a portfolio to best meet these requirements. It also enables us to ensure that portfolios remain optimally positioned to continue to do so, whilst adapting to changing market conditions and client circumstances. return for the prevailing market conditions. Whatever your requirements, through dialogue we can meet your goals. 3

4 Our capabilities At RLAM we have extensive experience of investing in fixed interest, equities, property and cash, and can demonstrate superior performance over the longer term. This experience extends to combining asset classes to construct multiasset portfolios, designed to meet clients specific needs. Some of our charity clients additionally have specific ethical requirements and we can offer segregated ethical mandates and pooled equity and fixed interest funds. 4 Fixed interest Fixed interest offers the possibility of higher yield for a lower level of volatility than equity or property, as well as often higher returns than cash. Our fixed interest capability spans the credit spectrum, from government bonds through to investment grade corporate bonds and high yield credit. Our long-established investment team benefits from a high level of stability and a collegiate approach. The bedrock of our approach to managing government bonds is our top-down analysis, which establishes long-term return assumptions and underpins our investment strategy. Allied to this, our government bond team fully embraces the concept of active management, believing that in a relatively efficient market, value can be added through stock selection and market timing, regardless of the overall direction of the market. Their approach encompasses an assessment of the market drivers and their behaviour, in a way that allows us to define the sources of incremental return. This helps to ensure that portfolio construction and risk allocation remain consistent with client objectives. Our credit team is similarly highly experienced; team members average more than 18 years market experience, with the core members having worked together for over 12 years. They have a strong track record of exploiting the structural inefficiencies inherent in the market. Our investment philosophy is one of not being benchmark constrained and our research process uses credit ratings as a starting point, rather than taking them at face value; at the core of our process lies valuation, while we have a strong focus on covenants, security and structure. As we look beyond benchmarks, our clients portfolios only contain bonds that we choose to hold. The diversification built into our portfolio construction supports outperformance, which is key in an environment of rising defaults. Property Property offers long term returns, again with a good yield, but is an asset class strictly for the long term investor. Our property team adopts an active and innovative approach to management, evaluating portfolios based on bespoke business plans for individual underlying properties. The team aims to balance the income from the core holdings with more active management of those properties that are expected to benefit from development, refurbishment or facilities upgrades in order to maximise the rental potential of each. Our flagship fund, the Royal London Property Fund, comprises a diversified portfolio of retail, office and industrial properties across the UK and this approach has enabled us to deliver consistent performance in a risk-controlled manner over the longer term. As a significant owner of commercial property in the UK, we take our environmental responsibilities very seriously. We acknowledge that we have an inevitable impact through the use of energy, natural resources and the production of waste. We have developed sustainability policies in order to demonstrate how we are managing our environmental impact and we aim to achieve a rating of very good under the Building Research Establishment Environmental Assessment Method (BREEAM) for all new developments and refurbishments. BREEAM is the leading environmental assessment method for buildings, setting the standard for best practice in sustainable design and becoming the most widely used measure of a building s environmental performance. We take our commitment to our occupiers very seriously and have developed transparent policies outlining how we work with tenants and carry out lettings and renewals. We have adopted the RICS Leasing Code of Practice, which outlines responsibilities and best practice for both parties. We have also been awarded Carbon Saver Gold Standard status for reducing carbon emissions across a range of our larger property investments, demonstrating that we are taking real action on climate change and are reducing our carbon emissions year on year.

5 Equity Equity offers the possibility of higher returns than fixed interest, property or cash, with an income yield if required, but has greater volatility of returns. In a world where the wealth of many often relies on the opinions of a few, we believe in hiring the best possible equity fund managers and entrusting them to make the best possible decisions. RLAM s equity fund managers average over 20 years experience, during which time each has developed their own investment style. We do not impose a house style or approach on them, but instead give them full discretion to invest according to the style that they have developed, within clearly defined risk parameters. However, although our equity managers do not share an investment style, they all agree on one thing: the importance of detailed research. They study economics, politics and social change on a micro, macro and global level, in order to identify opportunities and threats and modify their portfolios accordingly. They don t just examine what businesses do, but how they do it. They study the decision-making process of the management team and look for evidence that they acknowledge their responsibilities to shareholders and listen to their views. They never forget that having a view is as vital as identifying whether the markets will share that view. This approach, together with their experience and expertise enables them to add value for our clients by exploring opportunities that others may overlook. Cash Cash offers stability of capital and returns through interest, but is unlikely to return in excess of inflation in the medium term. We have learned through many years of experience that individual clients have individual liquidity requirements and embrace varying parameters of risk for their cash. We can tailor cash management solutions for individual clients through segregated accounts, or offer our very successful AAA-rated cash funds. This offers the most active spread of opportunities to meet our jointly agreed parameters and objectives. Our cash management team is one of the most experienced in the sector. They manage around 5.5 billion and have built a significant reputation. They evaluate every bank we lend to at first hand identifying sound companies in safe countries with a robust regulatory framework. They have three guiding principles when it comes to lending money: security, liquidity and yield, with security being the most important of these. The consistent application of this philosophy over the years has resulted in a proven track record for achieving good returns from low-risk investments. Lending your money is not a job to be taken lightly. On the one hand you want to generate the best possible returns; on the other you need to eliminate the asymmetric risks that mean one bad decision can wipe out hard-earned returns. We think cash management is a full time job that should be performed by seasoned professionals whose first priority is always the security of your money. Ethical investment For those clients with specific ethical requirements, we are able to offer ethical equity and bond funds, as well as bespoke, segregated mandates. For our pooled funds, our investment process begins with screening for eligible investments, which is conducted by specialist independent consultancy EIRIS, the Ethical Investment Research Service. With over 25 years experience, EIRIS is a leading provider of research into the environmental, social and governance (ESG) and ethical performance of companies. Our ethical framework combines the avoidance of companies involved in excluded activities with the identification of best of breed companies in permitted sectors. Typically, companies that generate more than 10% of their turnover from alcohol, arms, gambling, tobacco or pornography are deemed ineligible. Our screening process also identifies companies that have the opportunity to make a positive impact. With the support of EIRIS, we are confident that we can identify excellent investment opportunities to deliver outperformance within clearly defined ethical parameters. 5

6 Our approach to client servicing Our approach to client servicing is driven by our view that clients are at the heart of what we do. Selecting an asset manager and entrusting them with charitable assets is a big decision, so we take care to explain our investment philosophies and listen to our clients own views. Because we operate within an ever-changing economic environment, our relationships are based on keeping clients thoroughly informed. Our own charitable activity While we are based in the City of London, we acknowledge that not far from our affluent surroundings there are many people far less fortunate than ourselves. We believe that it is important to support the wider community in which we work; RLAM has a strong relationship with the East London Business Association (ELBA), which provides an invaluable link between the financial world and neighbouring boroughs. These boroughs face some of the toughest problems in We agree each client s specific reporting and account management requirements and assign a dedicated client services manager who is the key point of contact with RLAM and takes personal responsibility for every aspect of the relationship. This approach ensures that we are always aware of our clients views and are aligned with their needs. the UK in terms of unemployment, poverty, health and education. Our membership of ELBA enables our staff to share their skills with organisations in the local London Borough of Hackney, as well as supporting students, small businesses and others living and working in the borough. Our work with ELBA includes volunteering to assist people with budgets and their finances, team challenges at schools Your client service manager is able to arrange direct access to the investment team, as well as comprehensive valuation reports and market commentary, in a clear and easy to understand format. We also offer secure access to our and educational training of students. Volunteering and fundraising activities are overseen by the RLAM Charity Committee, who also co-ordinate the selection of a staff charity, voted for by RLAM staff, every two years. website, enabling clients to view portfolio details and other documentation relating to their investments. Our parent company is also actively involved in charitable activity, through its own charitable foundation. The Royal Corporate responsibility We take our corporate responsibility very seriously. We are signatories to the United Nations Principles for Responsible Investment (PRI) and are supportive of the UK Stewardship Code. We have a clear strategic objective of building business success based on delivering good investment performance and strong client relationships. We believe that by having an London Foundation supports local communities within the UK by operating a grant aid programme, with all of Royal London s members able to nominate causes that meet the eligibility criteria in the areas of education, health and the elderly. The principles upon which the founders of Royal London formed the company over 150 years ago are central to the aims of the Foundation, particularly the dedication to helping others improve their futures. effective Corporate Responsibility (CR) policy at the heart of what we do, we are better able to achieve this objective. As a Royal London Group company, RLAM s approach to CR is in alignment with that of our parent. Across the Royal London Group, CR is focused on four main areas: the environment, the community, the marketplace and our people, in accordance with the principles of Business in the Community (BiTC), a business-led charity that promotes responsible business practice. We are proud to have been awarded a 6 Silver rating in the Corporate Responsibility Index 2012 indepth annual benchmarking by BiTC, which is indicative of the focus and commitment which the RL Group places on CR.

7 Our credentials We offer scale and stability: we manage assets totalling 45 billion in fixed interest, equities, cash and property, including over 3 billion for clients with charitable status. We are part of Royal London Group, the UK s largest mutual insurer: our mutual ownership means that we invest for the long term, on behalf of both our clients and ourselves. We were incorporated as a separate company in 1988, although our investment pedigree is much longer than that; we have been investing on behalf of our parent company since its foundation over 150 years ago. Our investment teams are long-established and highly experienced, and have managed assets through all phases of the economic cycle. Our investment approach and philosophy have enabled us to consistently add value over the longer term. 7

8 Please contact us to find out more about investment for charities Royal London Asset Management 55 Gracechurch Street London EC3V 0UF t: f: e: Source: rlam as at July 2012 unless otherwise stated. This document is for professional customers only. The views expressed are the author s own and do not constitute investment advice. rlam is a marketing brand including the following companies: Royal London Asset Management Limited registered in England & Wales number ; Financial Services Authority (FSA) register number Royal London Pooled Pensions Company Limited registered in Scotland number SC048729; FSA register number Royal London Unit Trust Managers Limited registered in England & Wales number ; FSA register number Royal London Cash Management Limited registered in England & Wales number 19632; FSA register number All of the above are authorised and regulated by the Financial Services Authority. It also includes Royal London Asset Management Bond Funds Plc registered in Ireland number and regulated by the Central Bank of Ireland. All these companies are subsidiaries of The Royal London Mutual Insurance Society Limited registered in England and Wales number (FSA registration number ). Head office: 55 Gracechurch Street, London EC3V 0RL. Our reference: 440-PRO-07/2012-QS 8 Good thinking. Well applied.