Articles

There are thousands of charities across the UK helping to promote worthy causes or solve social injustices, and for many, investing is a fundamental way to ensure they can achieve their key objectives.

However, it can be a tricky landscape to navigate given the more unique financing strategies required by charities, and the limited investment options available to them that are both suitable to their needs and more importantly, aligned to their causes.  

This issue came to the fore this week when the trustees of Lankelly Chase, the UK’s 79th biggest charitable foundation, announced that it was disbanding to free itself from the entanglement of “colonial capitalism”.

Yet, there are many funds out there designed to align in some way to different charitable objectives, the question is how can you find them?

My role as an investment consultant is to solve this problem by identifying the best funds and managers for each charity investor, using my knowledge of the market to cherry-pick products which not only align with the charity’s goals but are also tailored to their funding strategy, so that they can choose from a variety of bespoke options.  

The importance of investing in aligned objectives

Investing is not only a steadfast way to maximise the value of fundraising and bequests, but with the right funds and managers you can also use it as another avenue to further your charitable cause or mission by creating even more positive outcomes for people and communities associated with the charity’s goals.  

For example, a medical research charity may want to place its investments in a pharmaceuticals heavy equity fund to improve the level of R&D in its portfolio, whereas a age related support charity might want to see more of their assets invested in care homes or hospitals to ensure their patients have the best services. In both cases, the charities have optimised their return whilst furthering their cause.

But why do so few charities pursue a mission aligned investment strategy despite only receiving small returns on their investments?

Facing challenges in the market

Fundamentally, charities make up an small part of the UK’s well established investor pool, meaning that the market in this space lacks the same innovation and growth that there has been in others – such as pensions. So as a result, there are fewer products available for charities and endowments that match their individual targets.

Another reason lies in charities choosing an asset class that is at odds with their funding strategy. If you choose a strategic asset class that is in contrast with your funding strategy (e.g. in using a total return strategy to meet regular spending requirements) it will make a huge difference to your return on investment.

This is why it’s crucial to clearly define your key financing objectives with a consultant from the beginning of your funding search so that your strategy – which could be entirely different depending on it being income or growth – is catered for by the correct asset-class.

The final reason why charities struggle to find mission-aligned investments is because many have restricted funds, placing them in a unique situation compared to other investors. The allocation of these restricted funds needs to be considered alongside charities’ strategic objectives. They need to ensure their investment works as part of the overall strategy and this may mean that the allocation to mission aligned investments isn’t as high.

Shifting the market

Myself, and other investment consultants play a vital role in shifting the market away from these challenges and towards the interests of charities.

Our goal is to make the managers create the funds charities want. The many environmentally sustainable funds available now are simply not wide ranging enough to meet the demands of the many charities’ looking to invest – we need diversity.

I was once asked whether there were any funds that could align to a charity focusing on cat rescue… I answered no, but the dream is that one day there will be!

We also need charity trustees to engage with us - investment consultants are able to advise on strategy, cashflows and managers funds. Bringing this all together enables charities’ to see how their money can help create lasting benefits to their mission, whilst also ensuring they meet their promises and facilitate the needs of the causes they support.

I urge every charity Trustee to reconsider their strategic objectives in line with their investment strategy, and assess whether any endowments could be better utilised accruing benefits for your individual charitable goals and the wider cause too.