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How can charities yield better investment outcomes? CAMRADATA’s latest white paper investigates

CAMRADATA, a leading provider of data and analysis for institutional investors, has published its latest white paper, ‘Investment Solutions for Charities’ following a roundtable discussion with key investors and asset managers looking at the best investment solutions for charities in the current economic climate.

The purpose of the roundtable was look at how charities can implement a transparent and comprehensive investment policy that balances risk and reward, reflects a charity’s objectives, and is governed by a clear timetable and set of rules.

According to Sean Thompson, Managing Director, CAMRADATA, “UK charities are between a rock and a hard place right now. Funding from government and public donations has been squeezed by austerity, but austerity has also increased the number of deserving causes charities are trying to reach.”

Thompson says that during the past ten years, strong investment returns eased the financial position of charities fortunate enough to own an endowment. However, this could change. There are now question marks over the ability of stock markets to support charitable efforts and the asset managers in attendance at the roundtable warned that a stock market crash could happen this year.

Thompson said, “Charities need to look at how to protect capital and where to find decent returns in more troublesome times ahead. Failing to adopt a robust, tailored investment strategy could be one of the most expensive mistakes a charity makes. In this time of fragile economic growth and tight public funding, charities must work harder than ever to maximise the return on their investments.”

While investment professionals don’t usually like to forecast market returns, the panel started the discussion with predictions.

Discussing potential returns over the next five years from the FTSE All-Share, the panel’s responses ranged from 7% annualised from Michael Stiasny, portfolio manager of M&G’s £1.3bn Charifund, to 4% from Christopher Querée, manager of the Ruffer Charity Asset Trust.

It was agreed amongst the investors that while a market crash can cause wealth destruction, there are also buying opportunities for those savvy enough to wait on the side-lines.

Other key highlights included:

The panel looked at the credit and equity markets, where good returns might potentially lie and the risks that should be avoided

Christopher Querée, manager of the Ruffer Charity Asset Trust pointed out that its charity portfolios are currently positioned for protection, with negligible exposure to credit and many equity markets too. An exception regarding risk-taking in equities is Japan.

The discussion also looked at UK equities and the dividends expected. The asset managers highlighted there is a strong tradition among UK companies of paying dividends, whereas internationally, the dividend yield is 2.5-3% – which would not please many clients.

The importance of the skills of the investment manager was also discussed, and most agreed they were more important than the type of strategy they used or the asset class they invested in. 

Finally, the panel were keen to highlight, that charities and foundations were the first responsible investors in the modern era, where ethics informed the investment policy. Today, responsible investing by charities not only spans ethics, but also sustainability and good governance.

The extra dimension unique to charities is that their daily remit is about doing good. This can cause potential conflicts when deciding on a responsible investment policy.

An example given was that the charity, the Esmée Fairbairn Foundation gives money to food banks, but does that mean they shouldn’t invest in UK supermarkets because they could be viewed as being part of the problem food banks are tackling.

Sean Thompson, Managing Director, CAMRADATA said, “This white paper makes essential reading for third sector investors as it gives expert insight from leading investors into which strategies may work best as we move towards more market volatility. All our white papers can be downloaded free, plus we offer investment research and quarterly investment reports.

“We also offer a free service to institutional investors, which allows them to do assisted searches with specific manager search requirements, as well as hosting several investment events throughout the year on key investment topics,” concludes Mr Thompson.