Should academies invest?

A recent investigation undertaken by Schools Week highlighted that several large academy trusts around the UK have invested surplus cash in various investment funds. This has helped to generate a significantly better return than if the cash remained in the trust’s usual banking arrangements. Of course, these trusts should consider themselves fortunate to be in such a situation with many struggling with cashflows around the UK.

So, if your academy trust is in the fortunate position of being able to invest surplus cash…should you? Firstly, let us take a look at the rules which academy trusts should follow.

The Academies Financial Handbook (AFH) section 2.28 is the first area to read. There are a number of “musts” which the Trust needs to comply with:

• Exercise care and skill in all investment decisions, taking advice as appropriate from a professional adviser
• Ensure that exposure to investment products is tightly controlled so that security of funds takes precedence over revenue maximisation
• EFA’s prior approval must be obtained for investment transactions which are novel and/or contentious

Risk is the key area of focus here. Any level of investment above bank accounts and short term deposits probably constitutes a conversation with a professional adviser – which would comply with the AFH.

Novel or contentious transactions could come down to perception. Given that the press has taken interest in academy trusts making these types of transactions probably gives an indication the transaction is contentious. Therefore the best form of practice would be to obtain EFA prior approval before any investments are made.

Trustees of academy trusts should also consider reading the Charity Commission guidance CC14 Charities and Investment matters: a guide for trustees. Again the level of risk being entered into is the key factor this document highlights.

Other factors to consider include consideration of the Trust’s short and long term plans. If a sizeable investment is made for a long-term period, the Trust needs to be mindful of cashflow forecasts and if the cash is required during this period. As an example, funding might be required for planned capital projects or even to balance budgets. Then there is, of course, the unfortunate scenario when unexpected capital repairs are needed to be made – these can be unforeseen so investing cash in an area where it cannot be quickly accessed may impact on your decision making.

So should academies invest? Yes, but only if the risk profile fits with the Trust and you can ensure compliance with the AFH.