Security

Investment objectives and policy

The Fund will seek to achieve, mainly through a portfolio of bank deposits and with minimal risk of capital loss, the higher rates of interest usually available in the London Money Markets, whilst maintaining the ability for depositing charities to make withdrawals at short notice.

Investments will be made with banks and other institutions which meet rigorous criteria based on independent credit ratings and size, with a maximum average maturity date for the investments of no more than 150 days. Risk is further minimized by limiting the proportion of the Fund’s monies that are deposited with any single bank or other institution.

The Fund may invest in sterling denominated deposits, Treasury Bills and other UK Government guaranteed securities and floating rate bonds and will maintain a minimum of 10% of its assets in investments realizable within 5 working days.

The Fund’s benchmark, before expenses, is the 7-day London Interbank bid rate (LIBID) as measured by the British Banks Association.

Current Lending Criteria

An institution may be considered for inclusion on the Fund’s lending list if it satisfies all the following criteria applicable to its classification:

1. British clearing banks and British building societies (including 100% owned subsidiaries)
1. Short-term credit of P1 (Moodys) or equivalent (other recognised agencies)
2. Long-term credit rating of A1 or better (Moodys) or equivalent (other recognised agencies) and
3. Numbered in the top 75 banks world-wide (or equivalent for building societies) by total asset size (net assets plus irredeemable loan capital – source The Banker or equivalent for Building Societies)
2. Overseas Banks
1. Short-term credit of P1 (Moodys) or equivalent (other recognised agenies)
2. Long-term credit rating of Aaa, Aa1, Aa2 or Aa3 (Moodys) or equivalent (other recognised agencies)
3. Numbered in the top 75 banks world-wide (or equivalent for building societies) by total asset size (net assets plus irredeemable loan capital – source The Banker) and
4. Full London Branch, or a guaranteed UK subsidiary, both eligible for liquidity support from the Bank of England

Maximum limits and diversification of assets

In addition to satisfying the current lending criteria, the total amount which may be lent to any bank or banking group is set by reference to the bank or banking group’s underlying credit rating. The maximum amount that may be lent to a top rated Aaa bank or banking group will not exceed 16% of the value of the Fund at the time of investment. Lower limits will be set for banks and banking group with lesser credit ratings.

Credit Rating Comparison

In addition to meeting the above requirements, comparisons will also be made with the Standard & Poors rating, and if the bank’s credit rating is significantly lower, a more conservative lending limit than that indicated by the Moodys rating will be adopted.

UK Government Guarantee

Any bank that participates in the UK Government’s 2008 Credit Guarantee Scheme will have a maximum lending limit one level above that indicated by its credit rating.

Secured Lending

Loans may be made to any financial institution when they are secured against UK Treasury Bills and UK Government Bonds. Loans may also be made to any financial institution when they are secured against Certificates of Deposit issued by any bank or banking group on the Fund’s lending limit list. (Secured loans against the security of Certificates of Deposit will be considered as part of the overall lending limit to the issuing bank or banking group)

Liquidity and maturity pattern

The Fund will maintain a minimum of 10% of total assets in investments realisable within 5 working days. No funds will be deposited with any bank or banking group for a period in excess of two years, and the maximum average maturity date for the Fund will not exceed 150 days.