TRUSTEE INVESTMENTS (6TH APR – 10TH APR)

The responsibilities held by trustees are significant, with ultimate compliance being to the Trustee Act 2000.  The Act legislates on how trustees manage and invest the wealth held within trusts, as well as safeguarding against the abuse of these powers.

Fundamentally, the Act imposes a duty on trustees to exercise these powers with a reasonable level of care and skill, considering the size, nature and purpose of the trust.

A professional trustee or someone with specialist knowledge is expected to show the highest level of care and skill.  A layman acting as a trustee would not be expected to demonstrate the same level of skill, however, they are still bound by trust law and are expected to act prudently.

The recent global market sell-off has resulted in a significant drawdown in capital values across investment portfolios, with the effects being felt across all investor risk tolerances.  Similar to the Global Financial Crisis of 2008, most traditional asset classes have fallen in value, albeit most dramatically for equities.

However, due to the social concerns surrounding the Coronavirus pandemic, unlike in 2008, the media attention has been elsewhere.  It has been deflected away from investment returns.  As such, the destruction caused across many trustee portfolios is either unknown or has been overlooked.

Our most recent Investment Committee Meeting highlighted certain issues that we believe are of great importance to trustees; we also believe that these have been largely ignored by the broader investment community.  We seek to rectify that.

It is our understanding that it is the trustee’s responsibility to outline the acceptable level of volatility associated with their investment portfolio, in line with the trust’s stated investment objectives.  Be this income or capital growth, in our experience, the outcome tends be one of risk mitigation; trustees are inclined to favour investment portfolios that limit their equity exposure, with the underlying aim to reduce the volatility experienced. 

Unless income is a declared need, objectives tend to focus around capital preservation in real terms, net of the underlying cost of investment and prevailing inflation.  Again, in our experience, this tends to favour portfolios that hold in the region of 25%-45% equities; we would categorise these investors as “Cautious” or “Moderately Cautious” investors.

With this knowledge in hand, our Investment Committee has identified issues pertaining the most widely used benchmarks associated with these “risk categories”.  Our analysis has identified that the expected maximum portfolio falls, as illustrated through returns generated within the Global Financial Crisis, have already been exceeded by these benchmarks and as such, they are also likely to have been exceeded by a large number of trustee portfolios.   

This raises three significant points for trustees:

  1. Are you aware of the maximum expected drawdown of your trustee portfolios?
  2. What effect will this have on the investment objective of the trust?
  3. What are your responsibilities to assess and rectify this?

Three Counties offer a specialist Trustee Investment Service which brings the insight required to meet the requirements of the Trustee Act 2000.  Through a managed and documented process and from our experience of managing Trustee Investment Portfolios for over 30 years, trustees can ensure that their investment objectives are met consistently, without the need for constant investment change.  We focus solely upon the needs of the trust and the long-term objectives of the trustees.

We believe that current markets are heralding a new paradigm in economic activity, where focus upon realistic and deliverable returns will be key.  This will result in even greater pressure for trustees to deliver the returns to meet stated investment objectives. 

If you wish to discuss your trustee requirements, please do not hesitate to get in touch.


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Covid Update

Throughout the ongoing Covid pandemic, we'd like to reiterate our assurances to all clients that we remain fully operational. All non-essential Three Counties staff are working from home wherever possible, and normal service continues to be maintained.

Should you have any concerns or queries, about the ongoing circumstances, or our general business services, you can reach our team by calling our usual telephone number on 0191 230 3034 or emailing admin@three-counties.co.uk

Our focus remains on managing your investments and financial plans through these most challenging times. Please do not hesitate to get in touch.

Updated: November 2020