Community Trusts explained - Article

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Executive summary

The 12 New Zealand community trusts are structured and operate very much in line with their genesis – the Rev. Henry Duncan in rural Scotland back in 1810 envisaged an institution in the form of a savings bank that would exist for the benefit of the local community – firstly by providing ubiquitous banking services, and then by distributing profits to benefit the local community.

The community trusts continue that tradition, governed by people from their local community, investing their community’s capital prudently, and tailoring their granting activities to provide significant and inter-generational benefits for their respective communities.

Today the 12 community trusts have aggregate assets of approximately $3.9 billion and make grants for the benefit of their local communities of over $100 million each year.

History

The savings bank concept envisaged by Duncan spread around the globe, arriving in New Zealand in 1847. Over the next century savings banks were set up around the country.

In May 1988 the New Zealand Government established the 12 independent Community Trusts - covering the whole of New Zealand - and gave each of the trusts 100% ownership of the shareholding in their local trustee savings bank. The specified area of operations of each of the 12 trusts mirrors the area serviced by their regional savings bank.

Amalgamation of a number of the regional banks resulted in the establishment of Trust Bank New Zealand Ltd. By April 1996, the majority of the community trusts sold their respective bank shareholdings to Westpac Banking Corporation (with the exceptions of Taranaki Community Trust and the ASB Community Trust).

Governance

The trusts operate under Trust Deeds which, while individual, are largely consistent across the 12 community trusts; and under the legislative framework provided by the Community Trusts Act 1999. These deeds are currently under review in order to ensure they are modern and fit-for-purpose.

Each of the trusts is governed by a Board of Trustees appointed by the Minister of Finance. Trustees are appointed for four-year terms, and may be re-appointed for up to two terms. Trustees must reside in the specified area of the Trust.

Trustees are appointed for the skills they can contribute to the respective trust – and the range of skills needed is wide, from governance and investment to community knowledge and connection. Trusts have identified the ongoing need for trustees with investment oversight knowledge and experience as a critical skill set.

The trusts are able to have input into the appointment process by making recommendations to the Minister as to the governance needs of the trust, and people who they believe would be appropriate to meet those needs; but ultimately it is the Minister’s role to make the appointments.

Trustees are remunerated by way of fixed annual trustee fees, set under the Cabinet Fees Framework.

The expected workload of trustees is considered to be approximately 30 working days per year. Each trust’s board generally meets on a monthly basis, and trustees are also expected to be available for subcommittee meetings, covering areas such as grants, investment, finance, audit and risk management, as well as public meetings and representing the trusts at community events.

Staffing

Across the 12 community trusts there are 100 FTE staff employed. The trusts establish their own staffing resource, with each trust generally having its own chief executive/manager, as well as staff with expertise in the areas of philanthropy, grant making, research, finance, communications and marketing, and administration. Investment management is generally outsourced to external investment advisors and fund managers, who report regularly to the trusts.

Investment

With aggregate investment assets in excess of $3.9 billion, the community trusts are a significant investment presence.

Established in perpetuity, the trusts set their investment objectives and structure their investment portfolios to meet the needs of their communities today, but also look to ensure intergenerational equity.

The primary purpose of community trusts as outlined in their deeds, is to provide charitable, cultural, philanthropic, recreation and other benefit to their communities. Historically, trusts used their investment returns to provide grants to achieve this purpose, however the trusts are now increasingly looking to also use impact investments to assist with achieving this.

Each trust engages an independent investment advisor to guide the trust’s investment processes and outcomes.

Granting

The 12 community trusts make grants to not for profit organisations delivering community benefits across the spectrum of education, health, sport and recreation, the arts, social services, environment, heritage, community development, and community economic development.

Since inception, the trusts have provided grant funding to New Zealand communities of around $2.7 billion. For the year ended 31 March 2020, $134 million of grants were approved by the 12 community trusts. These range from small one-off grants, through to recurring annual operating grants for predominantly social services sector organisations, and large capital grants for one-off major projects.

As well as grants, some of the trusts also offer scholarship funding – in areas including education, sport, arts, health and leadership. Some trusts also offer loan finance to community organisations, thus being better able to meet the financial needs of the community organisation, as well as ultimately recycling the capital (upon repayment of the loan) for use for the benefit of other community organisations.

The trusts also foster strong working relationships with other funders within their respective regions: gaming trusts, licensing trusts, family foundations, energy trusts, Lottery Grants Board, etc. The same partnership approach is adopted by the trusts in working with their local government partners in their respective regions, as well as with national family and corporate foundations such as J.R. McKenzie, Tindall, Todd, Vodafone, NEXT, and other foundations.

Working together

The 12 community trusts work collaboratively as a “family” of trusts. The 12 Chairs and 12 CEOs hold a combined national meeting every six months, and every two years the trusts hold a combined national conference.

Shared initiatives aimed at improving trust operations and exploiting the economies of scale that the 12 community trusts collectively generate are regularly put in place – examples include a shared insurance arrangement across a large number of the trusts that achieves substantial savings in premiums, and exploration of opportunities for economies of scale through common investment practices. The trusts also have an agreed mechanism for responding to nationwide grant applications.

The close working relationship and the collaborative approach that exists across the trusts is especially important given the difference in trust sizes – from the West Coast Community Trust with assets of just over $7 million, through to Foundation North with assets in excess of $1.4 billion, there is a very broad spectrum of trust sizes within the community trusts’ family.

The individual trusts are: