Five lessons schools should consider when investing

Carli Watson and Rupert Cecil from HSBC Private Banking discuss discretionary investment management

Investment can be intimidating, and the volume of information and opinions available can be overwhelming. We’d like to cut through the noise with some simple lessons bursars should bear in mind when considering the investment options for their schools.

We are going to focus on discretionary investment management because this is the favoured option of many schools where the bursar may feel they do not have the time, experience or knowledge to make individual portfolio decisions, and prefers to leave this to the judgement of an investment manager. 

Lesson One: Get invested, stay invested

Market timing is tricky, but history has shown the market rewards those investors who stay invested irrespective of their entry point.

The chart below shows the performance of the MSCI World Equities Index, a widely used benchmark of performance. If you had invested $100k in the index 30 years ago, your initial investment would have grown to c$820k. But being out of the market on the best 20 days of performance would have cost you c$620k worth of growth. 

Lesson two: Invest based on opportunity, not where you live

Traditionally, many schools have been very UK-focused in their investments. This is changing, which is welcome because limiting your investments to one economy reduces the opportunities available to you, and potentially exposes you to unwanted concentration of risk. 

Lesson three: Rebalance the portfolio regularly

While markets may be efficient in the long run, behavioural biases and market enthusiasm can mean asset classes don’t perform exactly as expected in the short-term. A particular asset can be the top performer one year, and weaker the next. To address this, make sure your investment manager is adjusting asset allocations to enhance returns, and ask them to explain the changes in detail. We also believe it is essential to move the overall asset allocation within the portfolio back to the target levels on a regular basis.

Lesson four: Manage portfolio costs

You are told returns can go down as well as up, but has your investment manager ever said fees can do the same? Your investment manager should be monitoring costs and scanning the market for lower-priced alternatives. Ask them what the Total Expense Ratio is for your portfolio. Another way to reduce costs is to set up a volunteer Investment Committee, instead of employing a consultant or independent financial advisor in addition to your investment manager. Parents and alumni with an investment background are often happy to give back to the school community in this way. 

Lesson five: Have a disciplined risk policy and review it regularly

Make sure you always know what you want your investment to achieve for you. If you have a short-term requirement, then cash must be your focus. A five- to seven-year time horizon for your funds, on the other hand, makes discretionary investment management an option. 

Similarly, review your appetite for risk. All investments involve some risk: past performance is not a reliable indicator of future performance, the value of your investments can fall and you might get back less than you originally invest. As your school’s strategy changes and the world changes, your appetite to bear risk will change. Your investment manager should be discussing this with you on an annual basis so that your portfolio strategy adjusts to reflect your needs. 

We hope these tips leave you feeling better prepared to think about your school’s investment needs. Our team is always happy to answer questions or discuss investment with you in more detail, see our contact information below. 

For further info please email, or visit 

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