CCLA Investment Management Limited

Investment philosophy
We believe that investing in quality assets with sustainable and growing cash flows at attractive valuations will lead to outperformance over the long-term. The main tenets of our philosophy are:

Focus on secular growth and free cash flow generation. We believe that returns are driven by fundamental factors and in order to outperform we adopt a long-term approach, exploiting the under valuation of cash flows and identifying investments trading below their intrinsic value. Our portfolio has a focus on long-term secular trends operating regardless of the economic backdrop and are constructed to benefit from the growth in free cash flow over time.

Focus on managing risk. We are disciplined but flexible and entrepreneurial in seeking to add value and to control risk, including financially material non-financial risk. We have diversified portfolios and, as complements to mainstream equities, we were early investors in assets such as infrastructure, student accommodation and energy efficiency.

Approach to sustainability We believe that a combination of legislation, regulation and changing societal preference will impact negatively on unsustainable business models.  We avoid investing in equities (companies) that have weak corporate governance or unacceptable social and environmental impacts.

From a practical standpoint, within our equity portfolio, this is based on:
• corporate governance (based upon our own in-house corporate governance ranking)
• sustainability (minimum standards and qualitative reviews based on the assessments made by our third-party data provider Sustainalytics)
• controversies (a review of how incidents can affect the reputation and future profitability of a company).

Investment process
Our investment approach is distinctive because it drives an integrated approach to meeting the needs of our clients and achieving satisfactory long-term real returns. Within listed equity we achieve this by integrating the assessment of both the financial and extra-financial risk into our decision-making process; aligning the way we invest with our client’s objectives, values and beliefs; and active ownership – using the portfolio as the platform from which we can drive change. The combination of an ongoing focus on what drives sustainable long-term real returns and the control of risk, with a healthy scepticism of benchmarks has meant that we add value by holding quality assets. We look for assets where:
• underlying returns are linked to progress of the real economy.
• there is no reliance on the risks of excessive operational or financial gearing or transient and fragile skill to add value.

Our investment approach focuses on the drivers and delivery of free cash flow and free cash flow growth. By linking the distribution policy of the fund to the portfolios free cash flow generation, we ensure income distributions are sustainable and linked to the underlying economic progress of the assets.

We do not have exposure to an asset simply because of convention or due to its market capitalisation. We follow a clear, repeatable process that identifies quality assets, delivering above average growth, trading at attractive valuations.

We have a rolling cycle of research to determine the outlook for assets and instruments with a periodic review of macro-themes, return drivers and risk factors. These are formally updated each year and otherwise as required by changes in politico-economic conditions.

For market level returns, risks and co-movement, we formally re-cast our projections on a quarterly cycle, projecting out for multiple time periods.

To accommodate specific uncertainties, we model returns under different scenarios, and this allows us to understand how our portfolios may behave in different market conditions.

We have a formal monthly cycle of meetings with a top-down focus, to accommodate any big-picture changes in forecasts, variables and investment return characteristics. We have formal weekly meetings that focus on individual stocks and news flow and investor portfolios. In addition, we review portfolios in the light of ongoing news flow and announcements. The formulation of strategy is a team activity drawing on the skills, insights and experience of the investment staff.

We employ pre-trade compliance systems to ensure that constraints and controls are observed, and ex-post daily checks are conducted by Compliance. Ethical restrictions are coded to individual asset level, and we employ third-party data for ethical screening (please see Ethics section for further details).

The investment objectives of our clients directly influence the long-term or strategic asset allocation (SAA) for each fund or mandate. These objectives are typically expressed in terms of a return target, a desired level of income, ethical and other restrictions, and often a risk budget. The return target is normally stated in terms of a return in excess of inflation, such as the consumer price index (CPI), in line with long-term goals to maintain spending power in real terms.

Since we pay little attention to the composition of the benchmark or comparator, we do not define our risk budget in terms of relative risk or tracking error but rather allowing ourselves sufficient leeway to meet our return and distribution targets.

A primary input to our asset allocation process is a set of capital market assumptions (CMAs) which are forward-looking estimates of return and risk over short, medium, and long-term horizons setting our strategic asset allocation for each mandate. These include expected returns, volatilities, and correlations of all the potential asset classes we may employ as part of an investment solution. Our CMAs are updated on a quarterly basis and reviewed by the Investment Committee.

Expected returns are based on a risk premium framework, in which asset-class specific returns are determined relative to a base asset such as cash or government bonds. Although long-term asset class volatility and correlation assumptions are often close to historical observations, current market conditions may cause expected returns to deviate significantly from history.

The building blocks we utilise are selected based on growth opportunities and their ability to increase capital values together with associated cash flows to support distributions. For most clients, equities are expected to provide much of the long-term increase in the capital value above inflation by direct participation in economic growth. Fixed income assets can provide some return and diversification against equity returns, however, as with many endowment funds we have been more active users of alternatives such infrastructure, contractual income, property, and private equity as the preferred source of diversification and capital growth. Cash, as an almost riskless asset, can act as a further source of risk reduction where necessary.

Over more than a decade, we have mitigated risk further by adopting an increasingly global approach to equity investment by selecting the best global opportunities irrespective of the country of quotation. Our approach to investment focused on long-term free cash flow rather than just a focus on distributions has allowed greater flexibility toward good investments instead of chasing higher yielding opportunities at the expense of long-term capital growth; an approach mirrored in our selection process within alternatives.

To decide on asset allocation we refer to the performance objective of the portfolio, the internal capital market assumptions and correlation matrix, and our 12-month predicted economic outlook to ensure that the current portfolio is and continues to be efficient enough in terms of the diversification offered by the selected combination of asset classes. We also review allocation based on concentration risk to themes and common factors to mitigate any unexpected consequences of the fundamentals focused bottom-up approach that we adopt for underlying asset classes.

Further, we test portfolio expected return and volatility in higher inflation scenarios and in the light of other market shocks, and are prepared to allocate to strategies and asset classes that can defend returns in those scenarios.

Our long-term strategic asset allocation for our Investment Funds (COIF Charities Investment Fund, COIF Charities Ethical Fund, CBF Church of England Investment Fund and Catholic Investment Fund) is 75% equities, 20% fixed income and alternatives and 5% cash.

We utilise direct investments, in house pooled funds and external funds in our multi-asset portfolios.
• Equities - we hold both UK and overseas securities directly, allowing full clarity and accountability for the risk and return characteristics and full compliance with ethical restrictions. In addition, it allows for efficient cost control and tax optimisation – we reclaim tax and register to achieve tax advantage for charity investors wherever possible, these advantages are largely lost if third-party pooled equity funds are held.
• Fixed interest – we invest directly in government bonds and via pooled funds such as the COIF Charities Short Duration Bond Fund and Federated Hermes Sustainable Global Investment Grade Credit Fund.
• Property - exposure is primarily in UK commercial property held via the COIF Charities Property Fund to secure adequate diversification, liquidity and to maximise tax efficiency. We also have exposure to property via real estate investment trusts (REITs).
• Alternatives - exposure to alternatives is via closed-end, open-end and limited liability structures. The alternatives tend to produce stable cash flows and are key for diversification. The areas we have in focus include infrastructure, alternative energy and operating assets.
• Cash - uninvested cash is held within CCLA’s Public Sector Deposit Fund and in direct investments in selected Certificate of Deposits which ensures liquidity for our investors. All approved financial institutions to which the fund lends to must have a minimum long-term rating of A- and short-term rating of F1.

The board of CCLA Investment Management Limited (CCLA IM) has established an Audit and Risk Committee that typically meets quarterly to oversee, amongst other things, risk management issues. In addition, an Executive Committee has day to day oversight of CCLA IM and its operations. The Executive Committee has in turn established:
• an Investment Committee (held at least quarterly) to oversee the investment process and activity.
• a Product Governance Committee (held at least quarterly) to oversee changes in funds characteristics and launches of new funds.
• a Risk Committee (held at least quarterly) as a risk governance committee chaired by the Chief Risk Officer, to which three sub-committees report into:
• an Investment Risk Committee (held at least quarterly) focused to overseeing matters pertaining to Investment Risk.
• a Fair Value Pricing Committee (held at least quarterly) focused to overseeing matters pertaining to valuation and fair pricing of all assets managed by CCLA.
• a Client Money Committee (held at least quarterly) focused to overseeing matters pertaining to direct holding of client’s money.

Although the ultimate accountability for risk leadership and management rests with the board and the Audit and Risk Committee, the Chief Risk Officer, in leading CCLA’s risk management function is suitably empowered and has responsibility to ensure an appropriate risk framework is in operation. The Chief Risk Officer also has an unfettered reporting line into the Audit and Risk Committee to further maintain his independence.

CCLA’s risk management function is divided between investment risk and enterprise risk with both areas suitably resourced with experienced risk professionals. Below is a summary of each area’s key responsibilities and coverage.
Enterprise Risk
The Enterprise Risk team is responsible for the design and upkeep of the firm’s risk management framework. This includes the strategies, methodologies, tools, processes and procedures necessary to identify, measure, mitigate, manage, monitor and report on a continuous basis the enterprise risks, at an individual and at an aggregated level, to which the company is or could be exposed to, and their interdependencies. The Enterprise Risk team looks after the following tasks:

Enterprise risk management policy and risk event management procedures
• Maintaining and developing the enterprise risk management framework (ERMF). This includes monitoring and refreshing the risk appetite statement against the firm’s top-town risks and maintaining and refreshing the firm’s risk profile review each quarter (including refining top-down and bottom-up risk taxonomies and control assessments).
• Managing core risk management processes. Conducting risk event and near-miss investigation (including root cause analysis, proposing control environment enhancements, maintaining the risk event log, managing and tracking issues and actions, facilitation of the risk and control self-assessment (RSCA) process and the development of key risk indicators. Enterprise Risk also facilitates the annual AAF 01/20 review, an independent assessment undertaken by a third-party of CCLA's key operational controls and processes.
• Risk reporting. Responsible for preparing risk reports for the Risk Committee, Executive Committee, Audit Committee and fund board documenting emerging risks to the firm/funds, highlighting risk event and loss trends and providing updates on specific enhancements made to the ERMF.
• Risk culture. Support the executive directors of the firm in setting the right tone from the top, ensure that the ERMF is well understood by all business teams (the 1st line of defence) and they take ownership of risks pertinent to their division. The Enterprise Risk team recognises the importance of embedding a risk and control mindset within the business, which in turn will enhance and drive the adoption of a strong risk awareness culture.
• Thematic and deep-dive reviews. Conducting focused, detailed reviews of specific team processes/products to ensure all risks are appropriately identified and rationalised, whilst ensuring control environments are suitably robust. These can be triggered by a risk event crystallising or via the annual RSCA review or as part of a significant project being implemented.
• Regulatory capital. The Enterprise Risk team has significant involvement in ensuring that CCLA remains appropriately capitalised, working closely with the Finance team to produce its internal capital adequacy risk assessment (ICARA). Enterprise Risk is responsible for the development of severe but plausible risk scenarios that are used to ensure the firm holds adequate own funds and that CCLA remains financially viable throughout its economic cycle.

Supplier management policy and procedures
• Maintaining and developing the supplier management framework. This includes giving guidance on the supplier management framework to the wider business, providing independent review and challenge of supplier risk assessments/due diligence activities and assisting with pre-screening checks and site visits.
• Supplier Management reporting. Enterprise risk incorporates data produced from the supplier management framework into the quarterly risk profile review and risk reports provided to the Risk Committee, Executive Committee, Audit Committee and fund boards.

Business continuity planning
• The Enterprise Risk function actively supports CCLA's Deputy Chief Operating Officer in delivering the business continuity plan, contributing to its maintenance and the testing of business continuity scenarios. Additional responsibilities include ensuring that operational resilience considerations such as, the safeguarding and monitoring of CCLA's Important Business Services is maintained at all times. The senior risk manager attends the quarterly Business Continuity Forum and is a member of CCLA's Incident Management team.

Investment risk
The Investment Risk team is responsible for ensuring funds and mandates are taking acceptable levels of risk and to ensure that any exposure from investment activities complies with the requirements set out in the relevant FCA Sourcebooks (e.g. “FUND” and “COLL”, as applicable), the respective fund literature and/or investment management agreements, as well as internal guidelines set by CCLA.

The Investment Risk team looks after the following:
• The Investment Risk Management Policy: regular review and update of the documentation that sets out the risks that may impact a fund or mandate, and to describe the processes to manage, monitor, and mitigate those risks.
• The investment risk control framework: reviewing, monitoring, and reporting on the state of the control environment, its adequacy and effectiveness.
• Ongoing monitoring and escalation: ongoing monitoring of investment risk metrics and compliance against set limits, as well as assessing the quality and effectiveness of the monitoring process. This includes escalation to the appropriate channels if any issue or concern is identified.
• Investment risk profile and mandate consistency: review and assessment of the consistency between the current risk profiles of the funds and mandates against the investment mandate expected by investors, including any limits which may apply.
• Internal risk limits and guidelines: reviewing and assessing the adequacy and effectiveness of internal investment risk limits and guidelines, as well as providing indication and the technical basis to support any change to internal limits that may be deemed necessary.
• Data quality, model validation and output validation: ensuring that the data used by the Investment Risk management function is fit for purpose in terms of quality, quantity, and breadth. Providing oversight and validation on external sources of data and on any output from external investment risk models employed. Providing when required, validation on Investment Risk information outputs destined for external consumption.
• Investment risk reporting: providing the Investment Risk Committee and other governance committees with appropriate and sufficiently comprehensive information and analysis on key risks as well as reporting on compliance of the funds and mandates’ limits (including regulatory, fund literature or mandate limits, internal limits and guidelines) (i.e. not limited to exceptions) to allow for decision-making bodies to attain to reliable information to appropriately challenge and call for action as deemed necessary.
• Regulatory reporting: providing the necessary data in relation to investment risk to the relevant departments within CCLA to enable the submission of regulatory reporting such as AIFMD Annex IV and Money Market Fund Regulation reporting to the FCA.

The latest fund fact sheet (https://www.ccla.co.uk/documents/coif-charities-investment-fund-fact-sheet/download?inline) on our website provides the discrete year total return performance of the COIF Charities Investment Fund over the past five years.

Annualised returns % as at 30 September 2025
COIF Charities Investment Fund (net)
1 year -1.52
3 years 4.96
5 years 5.36
10 years 8.36

Target benchmark: CPI plus 4%*
1 year 7.80
3 years 8.01
5 years 9.01
10 years 7.35

Comparator benchmark
1 year 12.95
3 years 12.45
5 years 9.71
10 years 8.90

ARC Steady Growth Charity Index (peer group, net)
1 year 7.24
3 years 8.38
5 years 6.16
10 years 6.24

Source: CCLA, as at 30 September 2025. *Target benchmark: gross returns of CPI+5%. Note: CPI+4% has been used for the performance charts to give a comparable net figure by assuming 1% costs. Comparator benchmark: MSCI World Index (75%), Markit iBoxx £ Gilts Index (15%), MSCI UK Monthly Property Index (5%) and SONIA (5%). The comparator benchmark is subject to change. Please refer to detailed description in the appendix. Performance shown after management fees and other expenses, with the gross income reinvested. Past performance is not a reliable indicator of future returns.

Our investment approach to our equity book is quality growth, which focuses on high quality companies that have strong fundamentals, sustainable competitive advantage and consistent earnings growth potential. We believe that these companies will provide resilience during times of economic downturns and upside during marking rallies.

There are times that this approach can experience periods of underperformance, especially when markets are looking more at momentum stocks, and this is the period where we are in today. We have seen that in the short-term this approach may underperform in these times, but in the long-term provide strong, long-term performance.

More recently we have had underwhelming performance within the health care sector of the equity portfolio. Our portfolios held too much exposure to a sector, that, whilst it has good long-term characteristics, was experiencing a prolonged downturn in its end markets and an increasingly uncertain policy environment under the new Trump administration. In response to this, we have rebalanced our exposure to the sector, retaining investments that we continue to see as best placed in the industry and exiting those companies where their profits are less certain.

In response to this, we have introduced additional tools into the investment process designed specifically to understand and take consideration of earnings momentum at the portfolio level. This follows our long history of adapting and evolving our investment process, which has previously seen us taking more international approach to equity selection, reviewing our alternatives portfolio and introducing more fixed income.

Our analysis continues, however, to point to quality shares as the best instrument to deliver long-term inflation protection and steady income. That core philosophy remains unchanged, even as the stock market increasingly concentrates in a small number of shares, which it previously did in 2000, 2008 and 2020.

We set out below the annualised volatility figures of the Investment Fund. Please note that we are unable to provide the below risk statistics for 1-year periods. This is because the figures would be based on less than 36 data points and would therefore not be considered reliable.

Annualised volatility % as at 30 September 2025
COIF Charities Investment Fund (net)
3 years 7.91
5 years 9.16
10 years 8.83

Comparator benchmark*
3 years 8.53
5 years 9.89
10 years 9.36

Source: CCLA, as at 30 September 2025. Annualised standard deviation is calculated using ex-post monthly net returns. *Comparator benchmark: MSCI World Index (75%), Markit iBoxx £ Gilts Index (15%), MSCI UK Monthly Property Index (5%) and SONIA (5%). The comparator benchmark is subject to change. Please refer to detailed description in the appendix. Data shown after management fees and other expenses, with the gross income reinvested.

HSBC Bank plc is the appointed custodian for the COIF Charities fund range, and this service is bundled and included in the fund’s OCF.