5 investment considerations for institutional leaders

We work closely with the directors and executives of companies, institutions and non-profits managing risk and investing appropriately to ensure their strategic objectives can be met. We understand that by developing a financial plan tailored specifically to your goals, we can assist in moving towards the future with greater financial security.

Below, we have set out 5 ideas for you to bear in mind when considering your organisations investment objectives.

Managing risk & volatility

We understand that finance is a conduit to your organisation, and the amount of risk you can accept and volatility you can tolerate while stewarding these finances needs to be understood. At Davy we can assist you in assessing the financial risks facing your organisation and guide you in making the right choices. Most organisations recognise that there is a need to invest to diversify their capital base and support their balance sheet. Investing will involve risk and associated volatility, we help to mitigate these risks through the development of a focused investment programme. Another risk that requires careful consideration is the risk to your organisation of not achieving its desired objectives. Davy can assist you in linking your organisation’s goals to your investment pool through a rigorous goals-based financial planning assessment.

 The economic cycle and your organisation

Directors should try to establish how the positioning of the economic cycle affects their organisation. We encourage our clients to use the Davy economic cycle indicator. This serves as a helpful planning aid for Directors as they shape their long-term financial plans, consider cyclicality and discern appropriate liquidity levels to support their organisation. Ultimately, a considered financial and investment plan that has an awareness of the economic cycle should contribute to greater goal success.

 Financial sustainability

It is vital that those responsible for governing organisations take a prudent approach in assessing their financial evolution. Davy recommends integrating scenario analysis into the planning process and presenting stakeholders with different scenarios that your organisation may face because of external factors. It might involve projecting what a downturn in your own business activities might look like, how this will affect forward looking budgets as well as affecting your chosen investment programme. The essence of financial sustainability is balancing surpluses with a sustainable level of activity during periods of stress. Organisations that largely have a perpetual focus should allow surpluses and reserves to build during periods of economic expansion and draw on these reserves during periods of economic weakness.

 Stewarding cash & liquidity in an inflationary environment

In the current environment, real problems facing organisations are too much cash on the balance sheet; negative cash rates, increasing inflation and the erosion of purchasing power represent an increasing concern for directors of perpetual organisations. Directors increasingly need to establish the optimal level of cash required to support their strategic plans. A dynamic investment policy is also required. Davy works with organisations to implement investment strategies which mitigate the erosion of purchasing power and protect the real value of funds.

 Investments role in supporting the balance sheet

Many corporate entities use their investable assets to support the balance sheet. Directors should make projections as the extent to which investments are required to support the budget, incorporating the cyclical nature of the organisation’s operations as a factor in the assessment. Furthermore, it needs to be established as to whether the requirements of the investment pool are realistic within the context of the mandate, which ultimately should be dictated by the risk tolerance of directors.