Independent schools have rarely had to balance so many pressures at once. Costs remain elevated, employer National Insurance has risen, charitable business rates relief has gone for qualifying schools, and VAT on fees is now part of the operating landscape. At the same time, the wider economy is still dealing with inflation above target, and pupil numbers in the independent sector have become harder to sustain.
For school governors and finance teams, this is changing the role of long-term capital. Endowments, bursary funds, designated reserves and cash are no longer passive balance-sheet items, they are increasingly part of how schools support financial resilience.
Financial pressure is increasing, but so is the demand for support
That matters because pressure on support and access has not eased. The 2025 Independent Schools Council (ISC) census showed falling pupil numbers but record bursary support, with fee assistance rising to £1.5 billion and more than one third of pupils receiving some form of help.1 More schools are also actively fundraising for bursaries, hardship and endowment funds.
The charitable purpose these schools exist to serve, therefore, remains central in this more constrained financial environment. The practical question for schools with invested assets is not simply whether returns look competitive, but whether each pool of capital is governed and invested in a way that reflects its purpose.
Not all capital is the same
That distinction is easy to talk about in theory and easy to blur in practice. A permanent endowment, a donor-restricted bursary fund, a designated reserve for future commitments and working cash should not all be treated as variations of the same thing. They have different legal characteristics, different time horizons and different spending freedoms.
Charity Commission guidance is clear that cash on deposit is still an investment, that restricted funds sit outside free reserves, and that designated funds are an administrative choice rather than a legal restriction. For schools, therefore, the first governance task is often to map capital properly before discussing markets or investment managers.
From mapping to policy: making investment strategy purposeful
Once that mapping is clear, an investment policy becomes far more useful. A good policy explains what each fund is for, how it supports the school’s charitable objectives, how much liquidity is genuinely needed, what level of volatility is acceptable and how performance will be assessed. For schools with permanent endowments, whether an income-only or total return approach is being taken, and the reasoning for this, should also be addressed. The right answers to these questions will differ from school to school, but Trustees should be able to explain them in a way that fits their circumstances, rather than relying on precedent or habit.
Matching risk, liquidity and time horizon
This is also where schools benefit from clearly separating short-term liquidity from long-term capital. Money needed for payroll, committed capital projects or near-term bursary calls has a very different role from money intended to support charitable activity over decades.
The Charity Investment Governance Principles provide a useful framework here, not just in terms of asset allocation, but in reinforcing the link between purpose, time horizon and risk. They emphasise that trustees should:
- define clear investment objectives aligned to the charity’s purpose;
- understand and articulate risk in the context of those objectives;
- ensure liquidity is sufficient for foreseeable needs; and
- regularly review whether the strategy remains appropriate.
Seen through that lens, shorter-term funds may justify cash and lower-risk assets, while longer-horizon capital can typically support a greater allocation to growth assets. Framed this way, investment strategy becomes less about abstract discussions of “risk appetite” and more about matching the right level of risk to the right pool of money.
What should come out of investment reviews?
This clarity also feeds into manager oversight. Updated Commission guidance expects investment arrangements to be reviewed regularly and independently of the manager. These requirements matter because a tougher environment tends to expose weak governance as much as weak markets.
If performance has lagged, is that because the manager is out of favour over a short period, because the mandate no longer fits the school’s needs, or because the school has never been explicitly clear about what success should look like? The answer should drive the response.
Too often, Boards either ignore underperformance for too long or react to it too quickly. Neither is good governance.
Recent market evidence reinforces the need for discipline. Data from S&P’s SPIVA reports, alongside long-running research published by groups such as Vanguard and Morningstar, shows that a large proportion of active equity managers underperform their benchmarks over both short and long periods.2 At the same time, some well-regarded charity managers have been open about recent periods of underperformance, linking results to specific asset-allocation and stock-selection decisions.
The lesson is not that active management should be avoided, nor that manager change is always the right answer. It is that schools need a robust review process with clear benchmarks, a proper diagnosis and a willingness to intervene when a mandate no longer serves the agreed policy.
Cash: earning more, but still not a strategy
Cash deserves the same level of scrutiny. In a higher-rate world, it is easier to justify larger bank balances than it was a few years ago, but that should not be mistaken for a long-term strategy.
Cash earns something again, but it still carries inflation risk, concentration risk and an opportunity cost if held beyond its intended purpose. Trustees should be clear how much cash is needed immediately, how much may be required over the next year or two, and how much represents long-horizon capital potentially sitting in a short-term solution.
For some schools, that may point to a more structured cash policy, for others, it may prompt a wider review of reserves and investment governance.
Conclusion: governance, not guesswork
For schools with endowments, foundations or meaningful reserves, the key issue is not whether markets rise or fall in the near term, but whether their assets are being managed in a way that is consistent with their purpose. Accessing independent investment advice can help you focus on that strategy and set clear objectives for all the assets being held.
Are trustees clear about the role of each fund?
Does the investment policy still reflect the school’s current circumstances?
Are spending expectations realistic?
Are managers being challenged against appropriate benchmarks?
Is cash being held deliberately or by default?
In a tougher financial environment, the schools most likely to feel in control will not necessarily be those with the largest balance sheets, but those whose assets are most clearly aligned to purpose, policy and time horizon. This is where strong investment governance can add real value.
