The emphasis of the Alpha CIF for Endowments' asset allocation is on “real” assets: approximately 70% of the fund will be invested in equities, and of these, at least 20% will be shares in overseas companies.

Over the recent past, charities have done well by investing relatively little overseas, as the UK has travelled through something of an economic renaissance. Since the end of exchange controls, UK equities have outperformed overseas markets by more than 2% per annum. Since 1990, this trend has become even more marked: UK equities have produced a total return of 8.6% annum, while overseas equities have lagged, producing a sterling return of 5.3% per annum.

Source: Sarasin & Partners

We believe this period of “catch-up” is ending. Emerging economies are playing an ever-increasing role in the global economy and in future we expect the UK equity market to produce returns in-line with other more mature economies.

Indeed, developed equity markets have become increasingly closely correlated. While an understanding of regional industries and local economic trends is still necessary, the ability to compare multi-national companies and find global winners is ever-more important. Ultimately, regional equity indices are indications of where economies have travelled, not where they are heading: they have been created by history, not by future opportunity. We expect our “thematic” approach to selecting global equities to benefit from these trends.

The allocation to bonds is a reflection of the low inflation environment we live in today and the emergence of a liquid and increasingly mature corporate bond market. However, these bonds need to be researched and managed more like equities than gilts: diversification and active management are the key to success.

The Endowments Fund will make use of its ability to invest in a range of alternative assets, including property and hedge funds. The General Power of Investment in the Trustee Act 2000 allows “trustees to invest trust funds in any kind of investment, excluding land, in which they could invest if they were the absolute owner of those funds.” The Endowments fund will actively consider a wide range of opportunities in the context of its long-term risk and return objectives.

Property is a relatively illiquid investment. However, its low correlation with bonds and equities, low level of capital volatility and secure income streams make it an attractive investment. As a globally aware investment house, we will also take advantage of the fast developing market in overseas property.

The small allocation to hedge funds acknowledges that although a young industry, the weight of evidence supports some of what has been promised: incremental absolute returns in all market conditions. There is a significant pool of investment talent only accessed through hedge funds. The fund’s policy will be highly selective.

The formal investment objective of the Fund is as follows:

“The investment objective of the Fund is to achieve long term capital and income growth. It is intended that this will be achieved by investment in a broadly diversified global portfolio covering the world’s principal stock, bond and currency markets, together with investments in “alternative” assets such as property related securities and units in hedge funds. The equity content will be diversified both by geography and by major investment themes. The Fund may hold cash deposits from time to time where it would be in the interests of efficient management of the Fund’s assets. It is anticipated that this strategy will provide a conservative investment vehicle with potential for achieving attractive long-term total returns.”