Annual Conference of Treasurers Woodbrooke Saturday, May 10, 2014

1. Annual Conference of TreasurersWoodbrookeSaturday, May 10, 2014 Investment Policy

2. Annual Conference of TreasurersInvestment Policy • Some background • Some theory • Some statistics • Some advice (not really!!) • A quiz • A group discussion – BYM Draft Investment Policy

3. Investment Why do we do it?

4. Is it • Because otherwise God would be angry? Matthew XXV 14 – 30 (Parable of the talents)

5. Is ItTo Get Rich Quick?

6. Is it • To provide against an uncertain future? or • To meet current needs? or

7. Is it BOTH

8. Present v Future Consumption

9. Be (at least a little) cynical • “Wall Street is a street with a river at one end a graveyard at the other”. • This is striking, but incomplete. It omits the kindergarten in the middle. Where Are the Customers’ Yachts? – Fred Schwed, Jr

10. Be a Realist “Once in the dear days before recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said, “Look, those are the bankers’ and brokers’ yachts.” “Where are the customers’ yachts?” asked the naïve visitor.

11. You pay the Broker’s salary – you call the shots

12. If you don’t understand - ask

13. Choose the theory for the market • Modern Portfolio Theory • Diversification reduces systematic risk • (limited-loss investments – ex. derivatives) • i.e. loss limited to cost of investment • Lloyds’ of London • “Diversification” concentrates risk • (multiple potentially high-liability ventures) • i.e. loss may be high multiple (e.g.715 * 3) of wealth risked • (based on premium for building cover on my house)

14. Modern Portfolio Theory

15. Average UK Defined Benefit Asset Allocation in Total Assets

16. Asset Allocation

17. You don’t get paid for taking on systematic risk

18. Equity Performance

19. Real Investment Returns by Asset Class (% pa)

20. Real Investment Returns (% pa)

21. Setting a target return • In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well. • i.e. • Know your time horizon • Set realistic objectives • Understand your appetite for risk

22. Stay in Control 1 • You pay the broker’s salary – you call the shots • If you do not understand - ASK • You set the policy – with help if necessary • Know your risk appetite - aim to sleep soundly • Agree the asset allocation • Agree the objectives – e.g. • Maintenance of capital – if appropriate • Total return v target income • Let the broker get on – do not meddle

23. Stay in Control 2 • Agree appropriate measurement yardsticks • Specific – benchmark your portfolio (bespoke?) • Peer group benchmark • (Charity) sector – e.g. WM Company reports • General – FTSE 100 /250 • So you can • Assess performance of the manager • If the manager cannot out-perform – why pay for “active” management? • Return generated per unit of risk (Sharpe ratio)

24. Light Relief Quiz Time