Beyond the pool: How bespoke investment strategies can help charities thrive

Working with over 1,700 charities across the UK, RBC Brewin Dolphin understands how organisations in the third sector can vary in terms of size, complexity and, of course, their good work to deliver societal benefit. We believe that for charities with significant investable assets, a ‘one size fits all’ pooled investment fund rarely does ‘fit all’. Instead, your organisation’s requirements can be more appropriately met by using a discretionary investment manager.

An investment management approach should underpin long-term sustainability, supporting a charity to deliver on its mission and maintain financial resilience. As trustees review how best to steward their assets, one of the key decisions they’ll make is whether to appoint a discretionary investment manager or invest through a pooled fund. While undoubtedly pooled funds offer simplicity, a bespoke approach can provide greater alignment and flexibility and allow for stronger governance.

Alignment with objectives and mission

Every charity operates with specific goals, time horizons, risk tolerances, spending commitments and ethical considerations. We work closely with trustee boards to manage portfolios that reflect these unique factors, helping to ensure the investment strategy directly supports their mission. This might mean generating stable income for grant-making, preserving capital to safeguard future operations, or pursuing long-term growth (or a combination of all three).

In contrast, pooled funds are designed to serve a broad base of investors, which can make it difficult for trustees to ensure that the fund’s objectives align precisely with their own. For charities with specific income requirements or detailed ethical criteria, this lack of flexibility can limit effectiveness and sometimes lead to uncomfortable compromises.

Control, flexibility and transparency

Appointing a discretionary manager gives trustees clear oversight of the underlying investments and the rationale behind each decision. Portfolios can be adjusted in response to evolving market conditions, changes in risk appetite or shifts in spending needs. This flexibility supports robust governance and allows trustees to demonstrate that they’re managing resources in the best interest of their charity.

Pooled funds, on the other hand, offer limited transparency and influence. Investors are typically unable to tailor asset allocation (and therefore can’t increase or decrease risk without moving to another fund) or exclude specific holdings, and they receive only standardised reporting. While this may simplify administration, it reduces control and can make it more challenging for trustees to evidence effective oversight.

Furthermore, charities looking to implement a sustainable drawdown strategy or a total return approach, which can help ensure that portfolio returns are maximised without distribution levels being compromised, are often unable to do so when invested via a pooled fund.

Investing responsibly

Most charities wish to ensure their investments reflect their values. A discretionary manager can implement bespoke environmental, social, and governance (ESG) criteria and/or apply tailored exclusionary policies. Having the scope to design and monitor an ethical framework provides confidence that investments are aligned with the charity’s purpose and stakeholders’ expectations.

Rather than applying blanket exclusions for our charity clients, we look to determine what responsible investment means to each organisation and then find a route to best to reflect these views in their investments. Some trustees are often interested to learn of other ways to bring about positive change, such as engagement with companies through stewardship.

Although pooled fund solutions offer ethical or sustainable options, these typically apply broad principles rather than bespoke screening. The result is often partial alignment (at best), leaving some charities potentially exposed to reputational risk if fund holdings conflict with their values.

To draw on a real-world example, we recently worked with a Midlands-based faith group with multiple fund holdings on restructuring its investments to exclude fossil fuels. These restrictions were already in place; however, the trustees were unaware of underlying holdings in oil companies within several of the ‘ESG-friendly’ pooled funds they owned.

Reporting and partnership

A discretionary relationship also brings ongoing dialogue and education. Trustees can expect detailed, tailored reporting, regular reviews and direct access to their dedicated investment specialists. This partnership helps to fosters transparency, accountability and informed decision-making.

By contrast, pooled funds will often provide limited engagement. Communication is generally periodic and reporting is standardised, with less opportunity for deeper strategic discussion or learning as access to the relevant individuals may be less frequent.

Cost

A common perception is that bespoke discretionary management is significantly more expensive than a pooled solution. While bespoke discretionary management is typically more expensive than a pooled solution, the cost differential has narrowed in recent years.

Discretionary managers offer competitive fee structures that are transparent and broadly comparable with certain pooled funds.

When factoring in the additional benefits of a tailored strategy, ongoing advice, active engagement and enhanced reporting, the overall value proposition will often favour a discretionary approach. In addition, transparent fee disclosures can ensure trustees maintain full visibility over costs and can even request for underlying costs (via the use of external funds) to be kept to an absolute minimum.

Who’s really benefitting?

There’s a growing trend among wealth managers of setting higher minimum thresholds for access to their discretionary services while also suggesting transfers to their pooled offerings for clients falling below these minimums. Is this to better serve charity clients or to scale up their propositions? Do firms genuinely believe they’ve listened to each client’s needs and decided there’s one solution that suits all? We think this unlikely to be the case.

Case Study

Background

We met with a medical health charity requiring more income from its investments to meet the high costs associated with fundraising to support scientific research. The charity’s assets had been split across two pooled funds; a climate-focused fund and a UK-focused high-yield income fund.

The climate-focused fund had underperformed in recent years, in part because it didn’t participate in the post-Covid-19 rally in oil and gas stocks. The charity felt that the fund’s ethical stance unnecessarily constrained the mandate while not actually aligning with its mission or values. The UK income fund, meanwhile, offered limited exposure to global growth opportunities. Through investing in two pooled funds, the charity’s combined portfolio suffered from duplication of holdings and a risk approach (of holding 70% to 80% in equities) out of kilter with its tolerance and objectives.

Action

The charity transferred the two fund holdings to RBC Brewin Dolphin to be managed in a discretionary portfolio tailored to meet its specific needs. It was assigned a local wealth manager as its primary point of contact, who built a deep understanding of its goals and requirements, which informed investment decisions. Our priority was to work with the trustees to develop a clear ethical investment policy that accurately reflected their charity’s mission, while avoiding unnecessary exclusions that could restrict long-term returns. This ethical policy is reviewed regularly with the board.

We constructed a lower risk portfolio (holding 50% to 60% in equities) and adopted a total return approach, which met the client’s specific income and regular drawdown requirements to support future funding needs. We also established an annual review meeting cycle, allowing trustees the opportunity to regularly discuss strategy, performance and priorities for the year ahead.

Outcome

The charity now benefits from a portfolio that’s ethically aligned, globally diversified and flexibly managed to meet its individual needs. Merging the two accounts also meant the charity benefitted from a lower overall management fee. The investments now support both the charity’s mission and financial stability. When the charity was donated some shares, we were also able to assist by transferring them into the portfolio, which wouldn’t have been possible within a pooled fund structure. The trustees have a single point of accountability, consistent advice, and a forward-looking investment plan.

Conclusion

Make no mistake, pooled funds can be an efficient and cost-effective way to invest, especially for smaller charities. However, we believe that charitable organisations with meaningful assets, specific objectives and ethical frameworks are better served by an approach tailored to their needs.

Aligning investments with mission, adapting strategy as circumstances change, and maintaining oversight supports good governance and long-term sustainability. This in turn allows trustees to focus on what matters most – fulfilling their charitable purpose – which is why we remain committed to ‘getting it right for you’. Most will know the feeling of pruning in the pool, a sign you’ve stayed past the point of benefit. If you’re beginning to feel the same way about your charity investments, perhaps it’s time to dry off and consider the benefits of a bespoke investment management approach.

Most will know the feeling of pruning in the pool, a sign you’ve stayed past the point of benefit. If you’re beginning to feel the same way about your charity investments, perhaps it’s time to dry off and consider the benefits of a bespoke investment management approach.

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The value of investments, and any income from them, can fall and you may get back less than you invested. Information is provided only as an example and is not a recommendation to pursue a particular strategy. We will only be bound by specific investment restrictions which have been requested by you and agreed by us. The criteria for a sustainable investment are still under development and can change. Please make sure you understand the objective and environmental, social and governance (“ESG”) characteristics of the product or service you invest in. Be aware a strategy, based on securities of companies which maintain strong ESG credentials, may result in a return that compares unfavourably to similar investments without such focus.

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