Investment policy

1. Why we have this Policy

• The Charity Commission for England & Wales (the body that regulates the administration and affairs of registered UK charities) makes it clear that a written investment policy is important for all charities with investment
• A written policy sets out what the IET is trying to achieve through its investments, provides a framework for making investment decisions, and helps the Trustees to manage the IET’s resources effectively and demonstrate good

2. Overview of this Policy

The Policy sets out:

• The IET’s investment powers;
• Governance matters;
• Review and approval;
• Investment advice and management;
• Risk management;
• Investment objectives;
• Strategy;
• Cash management;
• Environmental, social and governance (ESG) considerations;
• Measuring performance; and
• Pension

3. Investment powers

The Trustees’ general powers of investment derive from (and are restricted by) the Trustee Act 2000. These powers are not restricted by the IET’s Royal Charter, which states under clause 4:

“4. For the purpose of attaining the aforesaid objects the IET shall, subject to this Our Charter and the Bye-laws, have powers to do any act or thing and to administer the affairs and deal with the assets of the IET in all respects without any restrictions whatsoever and, in particular, (but without limitation):

(d) to invest any monies of the IET, not immediately required for any of its objects, in such a manner as may from time to time be determined, subject nevertheless to such conditions (if any) and such consents (if any) as may for the time being be imposed or required by law and subject also as hereinafter provided;”

4. Governance

The Board of Trustees has delegated the responsibility for investment activities of the Institution to the Finance and Investment Committee and included in that Committee’s terms of reference a requirement to ensure that the investments are managed in accordance with agreed policy and that this policy is clearly communicated in writing to the professional investment advisers engaged to undertake this activity.

5. Review and approval

• This investment policy is reviewed annually by the Finance and Investment Committee and recommended to the Board of Trustees for
• The Finance and Investment Committee takes professional investment advice in developing the investment strategy and ensures that the investments of the IET held against the reserve funds and the trust funds are managed on behalf of the Board of Trustees in accordance with legislation and good
• All divestment transactions are approved by two authorised signatories prior to being transacted, unless such transactions have been delegated to a Fiduciary Manager. The investment signatory mandate is reviewed annually by the Finance and Investment

6. Investment advice and management

• The IET’s investment strategy, including strategic asset allocations and investment management approach is developed with our Investment Advisors (Mercer). The portfolio constitutes a significant proportion of the IET’s total net assets and includes an investment property, Savoy Hill House, as well as a blend of non-property assets.
• The IET’s non-property investment portfolio comprises both Passive Investment Funds that track given investment indices and Actively Managed Funds which seek to out- perform an index or achieve a target return (net of fees) through the skill of the

7. Risk management

• Investment risk is managed at an overall level by diversifying the investment portfolio between different asset classes and geographic markets together with maximum ranges for these
• Liquidity risk is managed by periodic forecasts of the Institution’s reserve and cashflow requirements to determine tolerance to illiquid asset

8. Investment objectives

The IET’s overriding investment objective is to provide medium-long term real returns with appropriate management of risk. Where we hold permanent endowment funds there is the additional requirement to deliver greater sustainable income over the long term.

9. Strategy

• The IET’s unrestricted investment strategy seeks to maintain a well-diversified portfolio and achieve higher overall returns without taking additional overall risk. This has included the introduction of Multi-Asset Credit (MAC) and Emerging Market Debt (EMD) together with an allocation to Private Market Investment to take advantage of the ‘illiquidity premium’.
• The investment manager for MAC is Oakhill and the investment manager for EMD and Private Markets is Mercer.
• The allocation of unrestricted investment funds is summarised in the following table:

Asset Class	Performance Benchmark	Strategy
Developed Equities	Composite Benchmark comprising of regional indices provided by FTSE, MSCI and the Solactive Sustainable Global Developed Equity EU Paris-Aligned (NTR) Index	36%
Emerging Market Equities	MSCI Emerging Markets Index	4%
Diversified Growth	3 Month SONIA	12.5%
Private Markets	Not applicable	(up to) 15%
Multi-Asset Credit (MAC)	·    50% ICE BofA U.S. High Yield Index ·    50% Credit Suisse Leveraged Loan Index	12.5%
Emerging Market Debt (EMD)	J.P. Morgan GBI-EM Global Diversified Index	7.5%
Sustainable Fixed Income Global Opportunities Fund	Not applicable	12.5%
Total		100%

 

14.4 - The IET make use of a drawdown service to facilitate capital calls into Private Market Investments using the Passive Sustainable Global Equity Fund.

14.5 - Funds not committed to Private Markets (that would otherwise make up the balance of the ‘up to 15%’ strategic allocation) are held proportionately across the other asset classes in line with their strategic allocations, pending any future commitment.

14.6 - The current approved strategic asset allocations, which include tailored allocations in respect of the Restricted (i.e. Endowment) Funds, are shown below:

	Unrestricted Funds	Expendable Endowment	Permanent Endowment
Developed Market Equities	36%	47%	75%
Emerging Market Equities	4%	-	-
Diversified Growth Fund	12.5%	15%	-
Private Markets	(up to) 15%	-	-
Multi-Asset Credit	12.5%	15%	16%
Emerging Market Debt	7.5%	8%	9%
Absolute Return Bonds	12.5%	15%	-
TOTAL	100%	100%	100%

 

10. Cash management

• Cash balances arising from the results of operational and investment activities above that which is required for investing in ongoing operations are available for investment and normally invested externally and liquidated as reserves fall due to be utilised.
• Money in the form of cash balances arising from operational timing differences will be placed on overnight or short to medium term deposit with a UK clearing bank (minimum A risk rated). Except for IET’s principal bankers, there is a maximum limit for the IET Group (“IET”) of up to £2m deposit with any one organisation. It is permitted to place short to medium term deposits with a higher risk (i.e. lower than A rated) bank or building society if it is cost effective, subject to approval by the Finance and Investment Committee. Where the overnight deposit accounts, which are maintained with IET’s principal bankers, temporarily exceed that required for investment in ongoing operations (e.g. in January following significant numbers of membership receipts), the IET seeks to identify suitable deposit accounts with alternative providers as quickly as
• The IET will not enter into any contract-based foreign currency

11. Environmental, Social and Governance (ESG) considerations

• The Trustees have considered in detail the requirements of the Charity Commission’s Guidance note “Charities and investment matters: a guide for trustees” (CC14).
• The IET exists to deliver benefit to society by working to engineer a better world. The Trustees believe sound and transparent governance, alongside attention to the societal impacts of organizational outcomes, supports the development and delivery of beneficial engineering and technology solutions to society.
• The IET also has a specific objective to accelerate the pace of development and adoption of technology that supports the move towards a zero-carbon future to address the impacts of climate change on society and the wider environment.
• The Trustees believe that ESG factors can have a material impact on investment risk and return outcomes and that good stewardship can create and preserve value for companies and markets. IET therefore reflects these considerations, and particularly the role of financial markets in supporting the transition towards a more sustainable future, in its investment strategy.
• ESG considerations are a standard part of the selection process when appointing new fund managers and the Institution requires its investment managers to have an ESG Policy in place in the selection, retention and realisation of investments together with a well-developed focus on governance factors and the ability to demonstrate at least some indication, and preferably demonstrable evidence, of progress in stewardship with respect to environmental and social
• The Finance and Investment Committee use ESG ratings and research information provided by their investment advisor, Mercer, to monitor the level of an investment manager’s integration of ESG into their investment process and
• The Trustees have not specifically excluded any asset type, or individual investments in light of its charitable objectives or ESG policy, however recognise that a degree of bias away from investments with weaker ESG performance and towards stronger ESG performance will influence the makeup of underlying investments. Within its allocation to private markets, the IET considers that funds which focus on sustainable investment strategies will positively impact the application of science, engineering and technology to achieve public benefit.

12. Measuring Performance

• The Institution’s non-property investment portfolio is monitored through monthly reports for management accounting purposes as well as quarterly performance reports which are reviewed at every meeting by the Finance and Investment Committee and include our investment advisors’ view of both investment management and ESG ratings. The Institution’s investment property is valued
• For Passive Investment Funds, a desk research exercise is carried out every three years, with the assistance of the IET’s investment advisors, to reaffirm the Investment Manager’s credentials and For Actively Managed Funds, each new selection is managed on a case-by-case basis and a detailed review of past performance is carried out annually for such funds with the relevant Investment Manager.