Charity Investments: A Legal Guide for UK Trustees | LegalDocuments.co.uk

Overview

A charity investment is any financial commitment a charity makes with the aim of generating a return, whether that's income, capital growth, or a combination of both. In the UK, charity investments fall broadly into three categories. Financial investments are made purely to grow the charity's assets: shares, bonds, pooled funds, and cash deposits are typical examples.

Programme-related investments are made to further the charity's purposes directly, with any financial return being secondary, for instance, a loan to a social enterprise whose work aligns with the charity's aims. Mixed-motive investments sit between the two, pursuing both financial return and charitable impact together.

What ties all three together is the legal duty on trustees to act in the charity's best interests when deciding where and how to invest. This duty is framed by the Charities Act 2011, by the governing document of the charity itself, and by guidance issued by the Charity Commission (notably CC14).

Trustees don't need to be investment experts, but they do need to understand the framework, take appropriate advice, and document their decisions. The rest of this guide explains how.

Key steps

1. Check your governing document. Before making any investment decisions, read the charity's constitution, trust deed, or articles carefully. Some governing documents restrict what trustees can invest in, require specific approval procedures, or impose conditions on the use of permanent endowment. If the document is silent or unclear, the statutory default powers under the Charities Act 2011 typically apply, but this is worth confirming rather than assuming.
2. Agree a written investment policy. A clear, board-approved investment policy is one of the most important governance tools a charity can have. It should set out the charity's objectives, attitude to risk, ethical parameters, time horizon, liquidity needs, and how performance will be measured. Reviewing and updating this policy regularly, at least annually, helps trustees demonstrate that they are discharging their duties thoughtfully and consistently.
3. Take appropriate advice. Unless trustees have genuine in-house expertise, the Charities Act 2011 requires them to obtain and consider proper advice before exercising investment powers. This usually means engaging a regulated investment manager or adviser. Trustees remain responsible for the decisions, advice informs the decision but doesn't replace trustee judgement, so choose advisers carefully and challenge their recommendations where appropriate.
4. Diversify and manage risk. Spreading investments across asset classes, sectors, and geographies reduces the impact of any single market event on the charity's finances. Trustees should think about correlation, liquidity, and the charity's ability to weather a downturn without disrupting its work. Concentration in a single holding or sector is a common area of Charity Commission concern and should be justified if it exists.
5. Monitor, review, and record decisions. Investment oversight is an ongoing responsibility, not a one-off decision. Trustees should review performance against the investment policy at regular board or committee meetings, minute the discussions, and be prepared to change course if circumstances shift. Clear records protect trustees personally and show the Commission, auditors, and funders that the charity is being run responsibly.

Common questions