Trustees: Could your
risk profile be better?
Investing
5 min read
Questions?
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Please note: This article does not constitute investment advice.
While the goals of Trustees differ from one Foundation to another, many share a collective desire to steer their chosen cause towards a healthier, more resilient financial future.
In some cases, the weight of responsibility to leave things in a better state than in which they were found, can lead Trustees to err on the side of caution. After all, no one wants to make a bad financial decision that holds a Foundation back from delivering on its core purpose and promises.
When it comes to investments, that sense of duty and caution can occasionally lead to an overly conservative stance being taken within a Foundation’s portfolio. And ironically, despite coming from a good place, a safety-first approach could actually be causing more harm than you realise.
If you’re a Trustee, here’s why now might be a good time to raise the topic of risk the next time you sit down with your Investment Adviser.
Breaking it down
Broadly speaking, Trustees can sometimes confuse their fiduciary responsibilities with an obligation to minimise risk.
In reality, the focus should be on taking appropriate and proportionate risk in pursuit of the Foundation’s objectives. Those objectives are rarely limited to preserving capital. More commonly, they include maintaining distributions to beneficiaries today, growing assets in real terms (i.e. above inflation), and ensuring future generations can continue supporting the Foundation’s mission.
Inflation is a good example of why this distinction matters. While price pressures have moderated from their post-pandemic highs, the long-term cost of delivering charitable programmes continues to rise. A Foundation that adopts an overly conservative investment approach may preserve capital in nominal dollar terms while unknowingly allowing its real purchasing power to erode.
This is particularly important for Foundations with established grant-making programmes. If investment returns fail to keep pace with inflation and annual distributions, Trustees may eventually face difficult decisions about reducing grants, drawing more heavily on capital, or altering the Foundation’s objectives.
For this reason, many Foundations are increasingly looking beyond traditional asset classes. Infrastructure investments, for example, can offer attractive inflation-linked characteristics because revenues are often tied to increasing prices or regulated pricing frameworks. While no investment is without risk, infrastructure can provide an additional tool for helping portfolios maintain their purchasing power over time.
In for the long haul
Time horizon remains one of the most important considerations when determining an appropriate investment strategy.
Most Foundations are established with an expectation that they will endure well beyond the tenure of any individual Trustee. Viewed through that lens, short-term bursts of market volatility become less significant than the Foundation’s ability to meet its objectives over decades. This long-term perspective also creates opportunities to rethink how investment success is measured.
Historically, many Foundations have focused primarily on financial returns. Increasingly, however, Trustees are exploring broader mandates that incorporate impact investing alongside traditional investment objectives. Rather than viewing investments and charitable activities as completely separate, impact investments seek to generate both financial returns and positive social or environmental outcomes.
For some Foundations, this may mean allocating a portion of assets to investments that support affordable housing, renewable energy, community infrastructure, healthcare, education, or other mission-aligned initiatives.
Importantly, broadening an investment mandate does not mean abandoning financial discipline. Instead, it involves considering whether the portfolio can support the Foundation’s mission in more ways than one.
Reward, resilience and diversification
If a Foundation chooses to invest, it is typically because Trustees want the assets to achieve more than could reasonably be expected from cash or Term Deposits alone.
In many portfolios, equities remain the primary engine of long-term growth. However, a resilient portfolio is not built on equities alone. Diversification remains critical.
Alongside equities and fixed income securities, some Foundations might consider incorporating alternative assets such as infrastructure, property and private market investments. These assets can contribute different sources of return and may help reduce reliance on any single economic outcome. It’s important to note that they also come with their own risks and considerations.
Trustees should consider the Foundation’s broader balance sheet. Some organisations already hold substantial cash reserves, property assets, or operational surpluses outside their investment portfolio. Looking at the Foundation’s total asset position often reveals greater capacity to take prudent investment risk than initially assumed.
A useful exercise is to ask whether the portfolio has been designed solely to avoid short-term losses, or whether it has been constructed to maximise the Foundation’s ability to fulfil its mission over the long term.
The importance of a buffer
Maintaining a dedicated liquidity reserve or distribution buffer is an important financial planning step in the financial planning process for Foundations.
Rather than relying on annual portfolio returns to fund grants, some Foundations set aside several years’ worth of anticipated distributions in cash or defensive assets. This approach can help insulate charitable programmes from market fluctuations and reduce pressure to sell growth assets during periods of market weakness.
A well-constructed buffer can provide Trustees with greater confidence to maintain a long-term investment strategy while continuing to support beneficiaries through both favourable and challenging market environments.
In other words, risk should not be viewed solely through the lens of short-term portfolio volatility. Trustees should also consider the risk of failing to meet grant commitments or being forced to reduce funding when communities need support the most.
Staying focused on the mission
At Helm Wealth, we regularly remind Trustee clients that the purpose of investing is not simply to generate returns. The purpose of investing is to ensure a Foundation has the resources it needs to deliver its work today, tomorrow, and for future generations.
For many Foundations, that means maintaining current levels of funding, protecting those distributions against inflation, and creating the capacity to increase their impact over time. Achieving those outcomes may require a portfolio that embraces more diversification, accepts appropriate levels of risk, and considers a wider range of investment opportunities than traditional portfolios have historically utilised.
When viewed through that lens, the greatest risk is not necessarily short-term market volatility. It may instead be the gradual erosion of purchasing power, the inability to sustain distributions, or a missed opportunity to align capital with the Foundation’s broader purpose.
In our view, proportionate risk-taking, thoughtful diversification, appropriate reserves, and a clear focus on mission outcomes provide the strongest foundation for long-term success.
If you would like to discuss these themes in more detail, please do not hesitate to get in touch with our Advisers.
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