Investments

Our overall investment objective is to generate 4.5% real return over the long term.

This is to provide for real increases in annual expenditure while preserving the Trust's capital base to balance the needs of current and future beneficiaries.

We use this absolute return strategy because it aligns asset allocation with funding requirements and provides a competitive framework in which to judge individual investments.

Total portfolio cumulative net returns since 1986 (%)

Between 1936 and 1986, the Trust was the sole owner of the Wellcome Foundation, Henry Wellcome's drug company.

In 1986, the Trust began floating shares in the Foundation and used the proceeds to diversify its assets.

Since this first flotation, the endowment has experienced an average 14% growth every year. This has allowed us to greatly increase the funds available to disburse in charitable grants.

Total portfolio net returns (£)
Period to 30 September 2016

1936

Henry Wellcome's will creates the Wellcome Group (now the Wellcome Trust). The Group owns the Wellcome Foundation Limited, the drug company.

Death duties are considerable and have to be partially funded by selling some of Henry's historical medical collection. The remainder after death duties is £3 million.

1950s–60s

The Wellcome Foundation Limited begins developing breakthrough drugs, and sales grow from £10m a year in 1952 to £50m a year by the 1960s.

Blockbuster drugs such as Zyloric (1966) and Septrin (1967) increase sales to about £400m a year by 1977.

1981

Zovirax is developed. It becomes the world's first billion-dollar drug in 1985.

1986

Henry's will is legally amended to allow the flotation of 21% of the drug company. The Foundation becomes a public limited company, Wellcome plc.

1992

A secondary share offering raises a further £2.3bn and allows the Trust to diversify its assets further.

1995

The Foundation merges with Glaxo.

In the years up to 2001, the Trust sells out of the combined Glaxo Wellcome shares to diversify its holding.

2006

The Trust becomes the only UK-domiciled non-public sector organisation with an Aaa/AAA credit rating and the first UK charity to issue a listed bond.

Grant giving

In the Trust's first 20 years, we disbursed a total of £1.17m of dividends. Until 1972, our trustees allowed the majority of profits to be reinvested to build up the strength of the drug company.

Between 1965 and 1991, we disbursed about £100m.

Disbursements grew from £20m in 1985 to £100m in 1992 and £200m in 1994.

Over the 2015–16 financial year, our charitable disbursements rose to £1,034m.

The Wellcome Trust endowment now stands at approximately £20.9bn.

Our approach to investing is set out in our Investment policy [PDF 139KB]. This is reviewed at least every two years by our Board of Governors and Investment Committee.

Stewardship

We welcome the introduction of the FRC UK Stewardship Code [PDF 36KB], and support the industry's continued efforts to strengthen the role played by institutional investors in corporate governance.

Philosophy and competitive advantages

In the deliberate absence of any pre-determined strategic asset allocation, with the exception of very broad asset ranges, the following investment beliefs drive our asset allocation:

1. Sufficient liquidity must be maintained to avoid the forced sale of assets at distressed prices. Real assets offer the best long-term growth prospects and provide protection against inflationary pressures.
2. To maximise investment returns from global economic activity, the portfolio should be very broadly diversified with no innate geographical bias.
3. We seek to use the advantages of our long-term investment horizon, ability to tolerate high levels of short-term volatility, AAA balance sheet and proactive governance structure in our investment portfolio.
4. The best returns will be driven by combining aligned partnership with the strongest external managers and building in-house resource to own selected assets directly.
5. We're generally flexible about the vehicles we invest in, whether public companies or private partnerships.

Asset allocation

The net value of our investment asset base was approximately £20.9bn at 30 September 2016.

We invest across all asset classes and, for reporting purposes, split them into four areas:

• public equity
• hedge funds
• private equity
• property and infrastructure

Investment asset allocation
As at 30 September

Wellcome Trust Bonds are stated at quoted offer price in the table above. The bonds are carried at amortised cost in the Consolidated Balance Sheet. Investment assets exclude programme-related investments.

The investment asset allocation presents net investment assets by investment strategy rather than the statutory asset and liabilities classification basis presented in the Financial Statements. For example, the market value of Long Only Equities Global is the net market value of the equities, cash, investment debtors and investment creditors held within portfolios with a Global Equities investment strategy.

Public equity

A significant portion of our portfolio is invested in shares listed on equity markets around the world. We do this both directly through a portfolio of shares managed by our Investment team and through third-party managers.

There's no innate geographical bias in our equity portfolio – we're focused on owning well-managed businesses that are best able to take advantage of economic opportunities around the world.

When we appoint external equity managers to manage money on our behalf, we prefer active managers who share our long-term time horizon and run concentrated portfolios.

Public equity net returns (%)
Period to 30 September 2016

Public equity allocations by strategy (£)
As at 30 September

Direct public equity holdings > US$150m
As at 30 September 2016

Hedge funds

We are one of the largest institutional investors in hedge funds.

We're prepared to consider a variety of approaches but avoid funds that employ substantial leverage to achieve returns. In general, most of the funds we invest in are closed to new investors.

Hedge fund net returns (%)
Period to 30 September 2016

Hedge fund investments by strategy (£)
As at 30 September

Private equity

We have major exposure to private equity. This is mainly through partnerships with well-established buyout and venture groups across a broad range of locations and sectors.

We also selectively co-invest in direct opportunities alongside external managers.

Private equity fund net returns (%)
Period to 30 September 2016

Private equity investment by strategy (£)
As at 30 September

Multi-Asset Partnerships (MAPs)
Period to 30 September 2016

Property and infrastructure

We have a global portfolio of property. Our major asset is our freehold estate in South Kensington, London.

Investment in commercial property and infrastructure is driven by finding attractive value propositions at the appropriate risk profile.

Property net returns (%)
Period to 30 September 2016

Property investments by strategy (£)
As at 30 September

Risk management

We are very focused on both the qualitative and quantitative risks we take in our investments.

Our Investments team focuses on qualitative risk by continually meeting managers and through ongoing due diligence.

Our internal risk and performance team analyses the overall portfolio risk as well as the quantitative risk attributable to each asset class and underlying investment.

Investment risk is monitored and managed through a policy of holistic measurement using the following parameters:

• value-at-risk (one-year horizon)
• currency risk (both £ and US$ exposure)
• equity market beta (expectation of movement in the portfolio given a certain percentage change in global equity markets)
• liquidity and forecast cash holdings.

Bondholder information

In July 2006, we became the only UK-domiciled non-public sector organisation with an AAA credit rating and the first UK charity to issue a listed bond.

The £550m proceeds from the issue are being used for investments that, over the long term, will enable us to fund a wide range of scientific and medical research to improve health worldwide.

We received the International Financing Review award for the 2006 Sterling Bond of the Year for 'demonstrating the relevance of the capital markets to the sector and capturing the imagination of the investor community'.

Following our inaugural issue, it has been our strategy to regularly review market conditions and, on occasion, access the bond markets again when circumstances are appropriate.

We did so in:

• spring 2009 - benchmark gilts rallied and the Trust's credit spread showed signs of relative strength, given its continued AAA (stable)/Aaa (stable) ratings.

Our initial book was more than three and a half times oversubscribed given strong demand for high-quality fixed-income product. Reflecting this, we priced with the tightest credit spread over benchmark gilts in investment grade, primary, Sterling markets since December 2007.

• 2014 - demand for very long duration, high-grade issuance was significant. We issued bonds with a 45-year tenor.

Our initial order book was more than three and a half times oversubscribed, which allowed us to price at what we believe was the tightest spread for a non government-related issuer in the Sterling markets since the financial crisis of September 2008. We also believe this was the lowest coupon for a non government-related issuer in the Sterling markets for a bond with a maturity in excess of 40 years.

• January 2015 - we issued our first euro bond.

This was priced at a spread of 40bps over mid swaps, with the 1.125% coupon the lowest ever for an Aaa/AAA rated corporate in the euro bond market. It is the lowest ever coupon in the euro bond market for a corporate issuance with a tenor of longer than ten years. The initial order book was seven and a half times oversubscribed.

• Investment team

  The team manages our endowment and oversees all investments.

  Managing partners, Investment Division
  Danny Truell
  Peter Pereira Gray
  Nick Moakes

  Absolute return and buyouts
  Robert Coke, team head
  Elaina Elzinga
  Paul Verhaak
  Richard Walters

  Direct private investments
  Lisha Patel, team head
  Yiota Michou

  Public markets
  Joanne Bugg
  Charmaine Armitage-Caplan
  Catherine Fraser
  Ollie Hawkins
  Hamid Kadiallah
  Olivia MacDonald
  Fabian Thehos
  Marc Vuillemey

  Property and infrastructure
  Becky Edmunds
  Robert Holl
  Jamie Trivedi-Bateman
  Natalie Wong

  Venture and equity long/short
  Geoffrey Love, team head
  Hermione Foster

  Risk management and performance
  Sarah Fromson, head of Investment Risk
  Adit Mehta

  Investment services
  Christopher Weston, head of Investment Services
  Kirill Arakcheev
  Kerry Lancaster
  John Mills

  Administrative support
  Grace West, PA to the Chief Investment Officer
  Luxy Cunningham
  Gina Sexton
  Jayne Shaw

• Investment Committee

  The Board of Governors determines the broad structure of our asset management arrangements. Responsibility for implementation is delegated to our Investment Committee and Investment team.

  • Alan Brown
  • Damon Buffini
  • Kay Davies
  • Stefan Dunatov
  • Dr Jeremy Farrar
  • Sarah Fromson
  • Naguib Kheraj
  • Tim Livett
  • Eliza Manningham-Buller
  • David Mayhew
  • Nick Moakes
  • Michael Moritz
  • Peter Pereira Gray
  • Danny Truell