The Trusts Act of 2000 gives trustees of a charity the duty of care over the charity’s accounts – they are obligated to spend the charity’s money as effectively as they can. This can mean simply putting money into a bank account, but this is in most cases not an efficient use of resources. Although it comes with greater risk, structured investment typically yields a greater rate of interest than simply keeping money in a bank. If properly invested, charities can use their investments as a significant source of income. Trustees are legally bound to “obtain and consider proper advice” before investing any money. There are several different ways to invest – for example, a charity could own stocks in a certain company, or individual properties to lease them out – but often a charity would be limited in its investment strategy by its resources. To minimise risk, it is generally advisable to have a range of assets and asset classes, in case any individual investment loses value. Therefore many smaller organisations will invest in a collective investment scheme, which can invest in several different assets at once. This process also saves administration costs, since each individual investor will rely on the fund manager to decide which investments to make.

Common Investment Funds (CIFs) are a special type of collective investment scheme that only UK registered charities can invest in. They were set up in 1960 in Section 22 of the Charity Act to be themselves charities, and so CIFs enjoy the same tax benefits as other charities - for example, they do not pay stamp duty or capital gains tax. CIFs are professionally managed portfolios, often with large teams of investors and analysts deciding where to invest.

By investing in a CIF rather than a typical investment fund, charities are not delayed or have to pay for the process of reclaiming tax from the Inland Revenue. Tax benefits aside, CIFs typically have a lower initial and annual charge than most investment funds. This is because charities are likely to invest in a certain bulk in large units, they will less rarely withdraw their money and reinvest elsewhere and often because the fund managers will be more charitable towards their clients.

There are currently 50 different CIFs, with a combined value of nearly £12 billion pounds (footnote: WM CIF Quarterly Review Q2 2009).

There are several different types of CIFs. In general, CIFs will either invest in equities, bonds, property or in other funds – although several CIFs are a combination of these main asset areas. Some CIFs restrict which companies they will invest in, for example not investing in tobacco manufacturers, or those whose main source of income is producing armaments.

Only UK-registered charities can take advantage of CIFs, and their registered charity number must be quoted when investing.

It is difficult and inefficient for each charity to individually compare 45 different funds, and so Allenbridge uses its technology for ranking private investor funds to help charities make a more knowledgeable decision when investing. Allenbridge compares CIFs on the basis of their past results, combining data about their absolute return, their relative performance and other statistics. An Allenbridge Score is calculated from all this information.

Allenbridge is a respected and award-winning Mayfair-based organisation. Its investment analysis section was established in 1985, and its founder, Anthony Yadgaroff, is on the board of several charities, such as X and Y. Its CIF section was set up as a free service to charities to improve their financial efficiency.

The Charity Commission has a lot of information about Charity Investments and a specific page on CIFs. The October 2009 Edition of 'Charity Finance' has a special article on CIFs and other pooled schemes. For more specialist and specific advice, email our charity specialists Anthony Yadgaroff or Alan Saunders