Freeman Blog

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  • The First Rule In Investing...

    Posted by Mark Freeman
    Mark Freeman
    Mark Freeman & Associates was established by Mark Freeman to bring together a number of trusted associates who...
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    The first rule in investing: don't lose any money. The second rule: don't forget the first rule.  Warren Buffett

    Another unfortunate story (remember Panorama and Comic Relief?) has come to light this week about an international Christian charity that failed to safeguard its assets when it came to investment management. The Charity Commission has been investigating this charity since 2011 because one of the trustees was allowed to invest £5m of the charitys assets in the financial markets through potentially high risk speculative foreign exchange trades, without independent professional advice

    The trustee in question resigned and has subsequently been declared bankrupt. The trustee board has tried to get the funds returned, however it has become apparent that the funds will not be fully recovered.

    Whilst it is tempting to leave the decision of what and how to invest charitable assets with a trustee who claims to have sufficient investment management experience (we know that getting into the detail of investment management is not everyones cup of tea), it is the obligation of each and every trustee to ensure that they are fully confident they know and understand the decisions being made.

    A key part of every trustees responsibility is to see that independent financial advice has been taken, and to seek reassurance that the charitys assets are being appropriately invested, at a level of risk that is acceptable to the aims and objectives of the organisation.

    The Charity Commission provides very readable advice and guidance for trustees on exactly this matter (Charity & Investment Matters: A Guide For Trustees). They must consider advice from someone experienced in investment matters, saying:

    If trustees have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions or adopting a particular investment policy.

    Unfortunately in the case of the Christian charity, they do not appear to have followed these rules, nor taken independent advice and therefore did not perform their role as trustees. The loss of funds and services to their beneficiaries, not to mention the disruption an inquiry causes to the charity, its staff and trustees is quite considerable, when all that was required was for trustees to fully appreciate and perform their fiduciary responsibility.

    Trustees if you do only one thing for your charity today, download CC14 and make it your bedtime reading.  If you don't you may well come to regret it!

    Article by Valerie Austin 

    Feb 10 Tags: Untagged
  • Cash, Cookie Jars & Cookie Monsters!

    Posted by Mark Freeman
    Mark Freeman
    Mark Freeman & Associates was established by Mark Freeman to bring together a number of trusted associates who...
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    Over the last few months the markets have reacted violently to the good news about quantitative easing being tapered or stopped by dropping significantly, only to then increase significantly when bad news provides the rationale for QE not to be turned off at all! 

     The thing that should really surprise us all with this talk of good and bad news is…

    … no one is talking about the next potential correction in the markets.  Look at the US market - it reached its all time high in the first week of November; the FTSE is up 22% over the past year and 60% over the past five years!  Both are just about to or have surpassed the 2008 highs.

    The other interesting thing about the past five years is that no one has come up with a solution for cash – in fact investment managers steered clear of it because of the limitations on what they could do with it.  The result of all of this is that over the past two years cash has been pumped into the equity markets, resulting in the increases that we have seen. 

    Perhaps it is time to start increasing cash in the event of the next market downturn?  Some may say that the downturn won’t happen for some time, therefore make hay whilst the sun shines!  Wasn’t that what was said in 2007 before the crash of 2008?  (Interesting that some investment managers are now talking about cash solutions).

    With markets so high, our view is that organisations should now be considering how much cash they need from their investments over the next two to three years.  This may be a combination of income and realisation on investments.  Why? So that these funds are now accumulated and put into their so-called “cookie jar” for the rainy day which will inevitably happen. (According to Goldman Sachs this downturn will take place within the next eight years - when is anyone’s guess!)

    Once the cookie jar is established it allows an organisation to weather the storm by not having to drawn on investments or rely solely on the potentially lower income streams likely to occur at the same time. 

    Some will of course say that establishing a cookie jar will cause real value to decline relative to inflation, however when the markets drop inflation is likely to increase rapidly, and keeping up with it will be difficult anyway!  In the intervening period giving up a little real value for the certainty definitely makes our clients sleep better at night. 

    And, if markets take off some will be tempted to raid the cookie jar like Cookie Monster, trying to improve the overall return. The result will all too often be a feeling of immediate satisfaction, followed by that sinking feeling on returning to the cookie jar only to find it empty!  


    Nov 18 Tags: Untagged
  • “If you want to make enemies...."

    Posted by Mark Freeman
    Mark Freeman
    Mark Freeman & Associates was established by Mark Freeman to bring together a number of trusted associates who...
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    Woodrow Wilson once said, "If you want to make enemies, try to change something."  You may have seen the recent controversy over William Shawcross, chair of the Charity Commission and his interview with the Daily Telegraph.  He warned that charitable donations destined for places like Syria could fall into the wrong hands – i.e. extremist groups. This was translated into headline news by the Telegraph as “charity millions going to Syrian terror groups”.

    Well we all know that the papers like to sensationalise the news - it sells their papers - but what is interesting is the response from writers and those in the charitable sector some of whom see this “controversy” as a reason why Mr Shawcross is unsuitable for the role of chairing the Commission. 

    I recently attended a seminar where William Shawcross was one of the presenters. He spoke not only of the organisational problems that the Charity Commission faces, but also how the regulator has been criticised by the Public Accounts Committee for “not using their legal powers often enough to suspend/remove trustees”.

    There are numerous examples of fraud within the sector – charities set up for tax evasion purposes, excesses around executive pay, and stories about failing charities. And no doubt there are people who will use charities as vehicles for crime, money laundering and terrorism, perceiving them as a soft target, having a regulator with no muscle. 

    William Shawcross says that he is committed to sorting this out. In his first year at the Commission he has appointed a new board that is going to tighten its approach to serious case work and act more quickly with those charities under investigation.

    He is also lobbying to ensure that those who are found to have committed serious wrongdoing will not be able to hold a trustee position again – I didn’t realise that at the moment someone convicted of terrorism or money laundering can still be a trustee!

    Mr Shawcross also wants to see a flag against any charity that has its accounts qualified by an external examiner, to highlight those charities where there is something amiss with their financial statements.

    So why aren’t we full of praise for these endeavours and supportive of these changes?  They will ensure that the confidence we have in the way our charities are regulated is sound and that charities are governed with the same rigour as we would expect to find in the financial services industry, for example.

    My view is that change sometimes brings out the worst in people. When someone puts their head above the parapet to act as an agent of change, those with an axe to grind will use any incident to highlight an inadequacy. 

    But, I suspect the real reason behind the criticism in the Telegraph story is that Mr Shawcross is an outspoken conservative supporter, now operating in an environment that has a heavy social bias. So instead of looking at the big picture, some are more focused on gaining political points.

    Very sad, when what we actually need is Mr Shawcross and his team to continue rolling their sleeves up and deliver a regulator that has teeth.


    Oct 15 Tags: Untagged
  • Wonga, Despots and Ethics

    Posted by Mark Freeman
    Mark Freeman
    Mark Freeman & Associates was established by Mark Freeman to bring together a number of trusted associates who...
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    Over the summer it has been interesting to see how the public has reacted to the Wonga scandal that the Church of England found itself in, and has made me think about how we can avoid exposure to Wonga-type scenarios. 

    As a reminder the Church found that it had, through an indirect holding, 0.001% of the £5.1 billion in Wonga, one of the payday loan providers preying on the most vulnerable in society.  The aspects of this which I found most interesting were: 

    1)      it showed that ignorance of any potentially embarrassing holding is not a defence, and frankly never should be

    2)      the reality is that any organisation is likely to have a similar issue if it holds funds that are in a pooled vehicle and

    3)      clearly we shouldn’t rely upon our investment managers to flag up Wonga-type issues within your portfolios.

    Dealing with the issues above must be on the agenda of all organisations.  I know that we address this with all our clients, but how and where do you start? 

    Ignorance is not a defence.  It’s so important for organisations to understand what they hold in their portfolio, the rationale for it being there and, if it is there, what they should do about it.  More easily said than done in some cases! 

    Face value of your holdings is no longer going to cut it – you will need to delve into the types of companies and into the detail of what they do.  Your advisor, working with organisations such as Ethical Screening, can help you. 

    So, 0.001% is the new threshold for not holding any taboo stock, bond or other investment vehicle.  (Let’s face it you’ve probably already breached this threshold now, in the past and most likely into the future without even knowing it!) 

    To deal with this one, every organisation needs to make a decision about its own acceptable and realistic levels of indirect holdings, and set specific constraints.  By this I mean you need to set a limit that can be monitored, managed and revised in relation to global events that unfold over time.  This last one is by far the hardest, especially when you have purchased a fund with ethical constraints, which on the face of it meet or exceed your own requirements.  The reality is that you will need to revisit those constraints and probe them to understand what they really mean.  

    Over the summer we have been doing this with our clients’ investment managers, and have found some interesting results.  In our discussions a) our clients were surprised at the detailed information about their holdings and b) the investment managers had not thought laterally and considered the implications of the Wonga scenario to the portfolios. 

    With the escalating tensions in Syria, the Middle East and other parts of the world ruled by despots, all organisations with an ethical policy mentioning armaments must revisit, review and almost certainly make changes to their holdings or the way they have invested. 

     Otherwise be prepared to be Wonga’d in the press!


    Sep 17 Tags: Untagged
  • Dealing With Volatility

    Posted by Mark Freeman
    Mark Freeman
    Mark Freeman & Associates was established by Mark Freeman to bring together a number of trusted associates who...
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    Over the past quarter we have seen markets rise significantly, inflation is at a three-year low and interest rates remain non-existent, all leading some to suggest that a higher allocation to equities is warranted.

    Hmm, don’t we remember a similar situation back in the late 90s which then led on to a significant drop in the market, and the burst bubble of 2001/2?  There are those that say that current markets are not the same as then.  Really?

    Comparing markets now with then does reveal some differences.  One is that there is not as much hype and justification now around those share prices not underpinned by hard facts. 

    However, there is one aspect of the current market which is very similar to the 90s - volatility is back, and this time more so than before.

    Just looking at the last few weeks we see it rearing its ugly head, with markets dropping as a result of two events, the unfortunate and tragic events in Boston, and, on the same day, Cyprus selling its gold reserves.  Markets were off by nearly 2% then returned towards the end of the week. 

    So what does this mean for our long-term investment strategies?

    As we see it you have two options, one, you stick to your long-term investment strategy and do not waver (though you’ll need nerves of steel as there is likely to be a correction in the next seven to ten years).  Or two, you keep your long-term investment strategy as your ultimate goal but also actively manage your asset allocation tactically through this period. 

    By actively managing the asset allocation we do not mean changing it every quarter, but reviewing it along with your investment manager, and adjusting for the market conditions. It is also well worth considering how to weather the storm when it does happen!

    So what is the answer to volatility? 

    It really does come back to asset allocation, and being prepared to reduce the amount of potential performance in exchange for less of a rollercoaster ride! 

    One way to do this is by reducing your equity allocation in a rising market.  Another is being prepared to act quickly to make changes to the asset allocation as events unfold.  Personally, I think it’s easier to reduce now take to take some heat out of a portfolio than to guess when to make dramatic changes.

    One thing that is sure however, is that active monitoring of a portfolio is now more than necessary then ever, to ensure that active management can occur! 

    Next time a reminder from Aesop’s.

    Article by Mark Freeman


    Apr 30 Tags: Untagged
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