The Dunhill Medical Trust was born out of a £250,000 bequest left in charitable trust in 1950 by Herbert E Dunhill for medical research into tuberculosis, the cause of his ill-health throughout much of his life. Led by his niece, Mary Dunhill Lane, and subsequently by her daughter Kay Glendinning, the Trust re-directed its mission in the 1980s to address the increasing numbers of requests it was receiving for support for issues associated with ageing and the care of older people, renaming to The Dunhill Medical Trust and becoming a registered charity.
Today, as an independent charitable foundation, the Trust has assets of over £165mn, and continues in its mission to fund academic and clinical research and to support community innovators in improving health in later life. Andrew Gnaneswaran, Head of Investment, talks about joining the Trust in spring 2023 and inheriting a portfolio and an adviser relationship.
What is the The Dunhill Medical Trust?
The Dunhill Medical Trust is independent charitable foundation with an endowment of around £165mn, which it uses to generate funding to support researchers working to understand the mechanisms of ageing and age-related disease and researchers and community innovators to improve health and social care for older people.
As a health research funder, the Trust has no connection with the tobacco industry and complies fully with the Joint Protocol of Cancer Research and Universities UK on Tobacco Industry Funding to Universities (2004). The Trust has a specific exclusion for “tobacco stock” within its investment policy.
How did the Trust first come to the idea of impact investing?
Historically, the Trust employed a traditional investment approach, looking to maximise the financial returns generated from its investments to fund the Trust’s annual grant making activity, whilst maintaining the real value of its assets. It did this very successfully, from a financial perspective, over many decades and the portfolio was primarily invested in public equities across a number of fund managers, with investment consultants advising the Trust on manager selection and asset allocation.
However, by the mid-2010s, the Trust was receiving increasing numbers of enquiries from prospective award-holders and funding partners about the source of the endowment. While the Trust had not for very many years had substantial investments in tobacco stocks and the exposure was de minimis, the Board and the Investment Committee began the process of implementing a hard exclusion of such stocks to make its position clear. This opened the door to wider discussion about impact-conscious investment more generally.
In 2020, the Trust’s advisers encouraged it to look at the opportunities provided by investment in private markets as a way to improve its chance of meeting its rather stretching real return target of 4.5%. While an initial allocation of 10%-15% of the total portfolio value was agreed, the Trustees also engaged in a debate about how the so-called “blind pool risk” of such investments could be managed and expressed a preference for private equity funds with a focus on mission-supportive themes. At around the same time, the Trust made what it regarded as a windfall gain on completion of the sale of some land it had acquired in the late 1980s and the Board decided to allocate some of the proceeds of this sale to mission-focussed social investment opportunities (intending to use a range of financial mechanisms from equity to repayable grants). As a way to bring these developments together, the Trust published its Impact Investment Policy, using the Bridges “spectrum of capital” to set out how it intended to use its assets to support its mission: from “responsible investor” to “impact-first social investor” and philanthropic grant-maker.
Towards the end of 2022, the Trust identified that additional capacity was needed to support the organisation take the next step in delivering on those intentions. So in the spring of 2023, I joined the team as Head of Investment to help implement a socially responsible and impact-conscious investment strategy.
The Trust is looking to take an impact-conscious approach across everything that it does, which is quite unusual. Who and what drove that ambition?
The work around drafting our Impact Investing Policy in 2021 was led by our CEO, Susan Kay, supported by our Board of Trustees. She has always said that she does not regard taking an impact-conscious approach as unusual as charitable trusts and foundations are required to demonstrate public benefit in their activities. It is “business as usual” for them to have regard to the impact of their grant-making, so why not the rest of the endowment? She felt that this should be particularly important for a health research charity like the Trust whose name, despite Herbert Dunhill’s original intent, will be forever connected in so many people’s minds with a luxury goods company that, at one stage, owned a high profile tobacco brand.
How have you implemented that impact-conscious approach so far?
The build-out of a private market investment strategy had already begun with commitments to various funds before the Impact Investment policy was finalised. So, in common with probably the majority of trusts and foundations, you are never starting with an entirely blank page and you have to tread a careful, evolutionary approach that enables you to maintain your grant-making commitments, while at the same time seeking out funds and managers that align with your values, principles and mission. For example, the portfolio included Verdane Idun’s fund – an impact-focused fund strategy that invests in sustainable European tech-enabled businesses and an investment in Bridges Fund Management’s Property Alternatives Fund. While Bridges Fund Management is known as an impact conscious fund manager, the Property Alternatives Fund is arguably one of Bridges’ more commercial, but lower impact products. The private market allocation also includes a couple of other less impact-focused investments.
In respect of the social investment allocation, the Trust had made an investment into the Zinc 2 fund – a venture capital funds that looks to support mission-led businesses that improve the health of people and planet. As a less mature fund manager but one that was supporting academic and clinical researchers to develop healthy ageing solutions, very much in line with the Trust’s mission, this was considered a social investment, with the Trust’s commitment coming from the £5mn ring-fenced proceeds from the land disposal.
So, alongside the range of global public markets investments, that was the portfolio that I inherited when I joined in spring 2023. During the months that followed, it became clear that there was divergence in views and understanding on the policy intentions. So, my initial priority has been to work with the Board, the Investment Committee and our advisers in clarifying that intent, along with building out the social investment portfolio. That included recently completing on our first direct equity investment in an exciting start-up delivering an innovative model of care support services, BelleVie. We have also developed our approach to engagement in the public markets aspect of the portfolio.
What has that process involved?
It has involved a lot of talking, a lot of debate and a lot of defining of terms! The Butler-Sloss case and the re-issued Investment Guidance for Charity Trustees (CC-14) by the Charity Commission provided a useful opportunity to re-visit the policy, with a number of discussions at both Board and Investment Committee level. Philosophically, we discussed the different potential approaches along the spectrum. At one end, we could revert to investing to simply maximise financial returns and ignore the potential negative externalities that are being created through those investments and be fairly certain of the financial return we would generate to enable us to deliver our grant-making plans. At the other end of the spectrum, we could invest fully in high-impact opportunities that provide concessionary returns – but that means you may have significantly less to distribute in grant funding, an activity on which we’ve built our brand and reputation.
Ultimately, we are trying to find a point on the spectrum that allows us to articulate the role that all our assets play in contributing to our mission. One of the main concerns is that within our substantial public market portfolio, we may have investments in areas that actively harm our mission, especially when taking into account the broader social and environmental determinants of health. But as an investor that primarily invests via funds, we have less control and visibility of the individual investments held. We need to understand this so that we can be transparent about it, report on it openly and then, most importantly, track our progress in improving it. This is a piece of work we are currently commissioning, alongside finalising and publishing our updated investment policy statement.
We are committed to sharing our progress on this journey and it’s going to take some time. Investment opportunities for the private and social investment allocations are still relatively limited and we estimate that it’s going to take three to five years to deploy the capital we currently have allocated, before we can consider growing it.
You inherited a relationship with a third-party adviser – how have you found that?
For many trusts and foundations, working with a third-party advisor is necessary to build a diversified investment portfolio, especially as most organisations have limited in-house investment capacity. However, as more foundations move away from traditional investment approaches and start thinking about impact-intentional ones, the challenge for those advisors is to adapt their approach and processes accordingly. The majority of institutional advisors are experienced in supporting commercial investors, but as more investors start prioritising ethical and impact-conscious investment opportunities, different approaches need to be developed.
We have experienced a couple of those challenges with the development of our private market strategy. It initially included a recommendation to invest in secondary funds – funds that purchase existing interests or assets from primary private equity fund investors. Those types of assets have many benefits including risk-diversification, but lack transparency with limited line of sight around the types of underlying positions that will be held. It is not easy for those types of funds to be intentional about creating positive impact with their investment strategies. This means that our private market strategy has started to diverge from the original consultant recommendations and we’re in discussions to re-design it.
When it comes to the type of opportunities that an advisor will review and bring to us, the newer impact-intentional funds often struggle to meet their criteria to even be considered for due diligence. Given their relatively recent emergence, managers with high-impact fund strategies do not have established track-records or are raising smaller-scale funds. Some advisors need managers to have at least three fund vintages before getting on a recommended list. Additionally, advisors will typically only conduct due diligence on opportunities if they believe there is sufficient potential client interest: for example they might need the confidence that several existing clients with adequate investment capital will commit, before commencing any work. This creates a challenge if you’re one of very few of their clients with a higher risk appetite and impact focus.
As trusts and foundations continue to evolve their investment approaches, I’m confident that there’s sufficient demand for these types of approaches – with an increasing opportunity for advisers to differentiate themselves in the market by providing support for delivering impact-intentional mandates.
How does impact filter down into your public market investments?
Currently in our public markets allocation we have over ten managers, including some of whom have been in the portfolio for many years. As I alluded to earlier, having a relatively high number of managers for our portfolio size, has created challenges around transparency around investment holdings, due to the sheer number of underlying positions. We are currently developing a process to help us understand the impact of our public market investments, assessing the positive and negative contributions to our mission, and identifying those managers that are driving net positive impacts. As mentioned, if we want to be an impact-conscious investor, we need to find a way to first understand our current impact.
We believe that positive impact can be delivered by influencing individual companies to change their behaviour and improve their business practices, through a sustained engagement process. However, we acknowledge our limited capacity to directly engage with portfolio companies, so instead we rely on our fund managers to have effective engagement practices as part of their investment strategy. We have an approved engagement strategy which includes engagement through participation in a number of activist shareholder networks such as the Charities Responsible Investment Network (CRIN). We are also a signatory to the Long Term Investors in People’s Health programme, for example.
How are you looking to incorporate diversity, equity and inclusion considerations into your impact investing strategy?
Similar to our impact intention, diversity, equity and inclusion are golden threads that run through everything we do and are among the core values and principles we set out in our wider strategic framework. In reviewing our investment policy statement, we concluded that one of the gaps had been to articulate explicitly how we apply those principles and values, which our so core to our grant-making, to selecting our fund managers, for example. Across the investment eco-system, a range ways to address issues around diversity, equity and inclusion are emerging – from fund manager disclosure requirements around the diversity of senior management personnel, to venture capital funds dedicated to investing in female-led businesses. In deciding which of these proxy metrics to prioritise and track, we start with understanding how they help contribute to our mission – and our strategic framework guides us in that.