Case Studies in Focus: Refining a Multi-Asset Sustainability Fund for Higher Return and Lower Cost

Tatyana Mursalimov
Aug 27
3 min read

This post is the third in our Case Studies in Focus series, which highlights real-life examples of how PMCL supports charities in aligning investment strategy with mission, governance capacity, and long-term spending goals. In this case, we worked with a faith-based foundation seeking to refine its existing multi-asset fund - delivering better returns, lower costs, and stronger governance tools, without the disruption of changing investment manager.

When Sustainable Strategy Becomes Over-Engineered

The foundation had invested its endowment in a multi-asset fund with a sustainability overlay, broadly allocated as 75% global equities and 25% diversifiers. A routine review of investment policy and manager performance brought three concerns to the fore:

The fixed-income exclusions appeared to overshoot the charity’s own ethical policy, reducing diversification and increasing fees.
Several alternative impact-labelled holdings were costly and underperforming on a net-of-fee basis.
Trustees were aiming for higher long-run distributions, but did not have the resources to monitor complex strategies or actively manage liquidity themselves.

The key question: Could we enhance return and reduce cost, without switching manager or compromising ethical alignment?

Evidence-Based Adjustments with Minimal Disruption

We began with a targeted “gap analysis” of the fund’s sustainability policy, comparing it to the charity’s ethical guidelines. In the fixed-income sleeve, the fund’s house-level exclusions were stricter than needed. Aligning them more closely with the charity’s actual policy restored a broader investable universe and reduced vehicle-level fees.

Next, we examined asset allocation. Scenario modelling showed that shifting to an 85% equity / 15% bond mix, while removing costly alternatives, could raise expected real returns by approximately 0.5% per annum, with only a marginal increase in volatility. Simulations dating back to 1987 reinforced the robustness of this approach.

The 15% bond allocation was redefined as a dedicated volatility buffer. This buffer would top up during strong markets (harvesting gains for future liquidity), and provide protection in downturns, meeting distribution needs without selling equities at depressed valuations. The buffer would automatically reset to 15% when equities reached new highs.

We also addressed the fund’s spending policy. The existing 4% flat annual draw on market value had worked well during strong markets, but back-testing revealed vulnerabilities in more volatile conditions. We introduced a Yale-style spending rule, blending 80% inflation-linked and 20% market-value-linked elements, integrated with the buffer to provide smoother, more resilient annual grants.

All recommendations were stress-tested using rolling five-year scenarios with two-standard-deviation downside shocks. These showed a less than 5% chance of eroding real capital - provided the new buffer discipline was observed. Trustees engaged with the modelling directly in dedicated workshops, building confidence in both the new structure and the slightly higher equity stance.

Tangible Outcomes

A stay-with-manager approach proved effective. After validating the manager’s capabilities, we worked together to implement a bespoke segregated mandate. This removed the most restrictive bond screens, eliminated high-fee alternative allocations, and cut overall fees by around 30 basis points - while retaining key sustainability exclusions.

The new structure delivered clear results:

Net-of-fee return uplift: Expected real returns increased by c.0.5% per annum through improved asset allocation and reduced costs.
Simplified architecture: Two liquid building blocks - global equities and high-quality bonds - replaced a patchwork of niche, expensive funds.
Stronger liquidity and oversight: The volatility buffer and revised spending rule gave trustees clearer levers and better visibility into risk and funding.
Manager relationship preserved: Refining the existing strategy avoided transition risk and maintained a productive long-term partnership.

How We Can Help

This case illustrates how detailed policy review and evidence-based modelling can help trustees extract more from existing strategies - boosting return, lowering cost, and tightening governance without major disruption.

At PMCL, we help charities evaluate and refine investment approaches in a way that aligns with mission, improves outcomes, and respects each organisation’s governance capacity.

Stay tuned for the next post in our Case Studies in Focus series, where we’ll explore how we helped a charity replace an incumbent manager through a rigorous, end-to-end selection process.