OPERATIONAL GUIDANCE

POOLING SCHEMES AND POOL CHARITIES

WHEN TO ESTABLISH A SINGLE POOL CHARITY AND WHEN TO ESTABLISH TWO POOL CHARITIES

OG 49 B2 - 11January 2007

Divisional responsibility

For action:

Charity Support Division
NHS Charities Section

Contents

1. Why two pool charities may be needed
2. Mixed pool proposed by trustees
3. Unofficially pooled funds

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

1. Why two pool charities may be needed

When both contributing to a pool charity and investing the funds contributed, trustees should consider the standard investment criteria set out in section 4(3) of the Trustee Act 2000. The investments chosen by the pool charity should be suitable and appropriately diverse.

If a charity has both capital and income funds to invest, it may wish to pursue a different investment strategy for each. What is a suitable investment for a capital fund may not be suitable for a spending fund and vice versa. It is therefore likely that two pool charities will be required. For example, a charity may have:

(a)

permanent endowment and/or expendable endowment, which it has the power to spend, but which it intends to retain for the foreseeable future (in effect treating it as if it were permanent endowment); and

(b)

surplus income funds which it wants to put away for a short period and/or expendable endowment which it plans to spend.

In example (a), investment policy will not need to recognise any particular need for investments to be sold quickly in order to fund spending plans. This may reasonably lead to the creation of an investment portfolio which contains assets that may be difficult to dispose of quickly (eg, land and buildings) but which will grow in value or generate a regular income.

In example (b), the funds do not need to generate a regular income but they do need to be available – either in whole or in part – to spend at short notice. The investment portfolio will therefore need to contain assets that are easily sold for their full value (eg, quoted investments). Land and buildings would not normally be appropriate for this sort of fund.

Because there are fundamental differences between these two possible investment strategies, it is important to know which one is appropriate to the funds to be pooled. Mixing the two strategies in a single pool is not normally practical, so if the funds to be invested in a pool include both capital and income, trustees are likely to ask that two distinct pool charities should be established. (See section 2 below if they do not.) Conceivably, where the trustees are responsible for a large number of charities with substantial funds, the pooling Scheme may need to create more than two pool charities to accommodate the need for a wider range of different investment strategies.

2. Mixed pool proposed by trustees

If the trustees propose to invest both long-term endowment (that is permanent endowment, and expendable endowment which they intend to hold indefinitely) and short-term expendable funds in a single pool, they should be advised of the reasons why we consider that it is unwise to create a mixed pool along these lines. But if they persist in their request for the creation of a mixed pool, then we should create a single pool charity by our Scheme.

3. Unofficially pooled funds

An unofficial (or "informal") pool is one that is not being operated under the authority of a Scheme of the Court or of the Commission.

The following words and phrases are defined in the Glossary of Terms:

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1993 Act
expendable endowment
participating charities
permanent endowment
pool charity
trustees

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