Governance, legal and compliance Investment

Guest blog: Insights into charity investment practices

This guest blog is courtesy of Newton Investment Management. It provides an overview of some of the key findings from their recent survey of charity leaders, shedding light of charity investment practices and portfolios. The 2016 survey is now open.

In the summer of 2015, we surveyed a cross-section of leaders and decision-makers in the UK charity sector for the second time. A total of 94 UK charities, representing some £20.7 billion of investment assets, contributed to the survey, an increase on the previous year, adding further depth and colour to our understanding of investment thinking and practices in the sector. We have now launched the 2016 survey, and once again we are seeking the opinions of leaders in the UK charity sector to build on the insights provided in previous years. We are particularly interested to find out if recently disappointing stock-market returns have changed charities’ expectations for the future, and to see how the fossil-fuel debate has evolved over the last 12 months.

The 2015 Newton Charity Investment Survey covered a wide range of investment-related topics; here we summarise some of the key findings we are hoping to expand on this year:

Charities remain cautious about the future

For both the medium and longer term, over half of charities expected total returns in the 6-9% range. In the medium (3 to 5-year) term, charities were particularly cautious, with only 8% expecting their total returns to be above 9% per annum. Over the longer (10-year) term, respondents were generally more optimistic for individual asset-class returns. Perhaps charities felt that any current difficulties facing global markets would have been well and truly resolved ten years from now.

Larger charities had greater exposure to alternative assets

Very large charities, with portfolios above £500 million, had much lower exposure to publicly quoted equities and bonds (61%) than small charities, with portfolios up to £20 million, whose exposure was 83%. Very large charities had a greater exposure to property than to UK equities and UK bonds combined. They were far more likely to employ investment consultant advice, and so were more likely to have more complex and diverse asset allocation policies.

A majority of all charities had not changed their withdrawal rate over the last five years and did not expect to change it over the next five

On average, charities took out 3.7% of their investment portfolio each year to spend on charitable purposes. However, charities considered a sustainable withdrawal rate over the long term to be 3.3% per annum (i.e. a lower figure than the current actual rate of withdrawal). In setting a conservative figure, charities were reflecting their own lower future return outlook, as well as market consensus expectations of (low) future sustainable withdrawal rates.

Almost half of charities applied ethical exclusion policies to their investment portfolio

Religious and medical charities were the most likely to apply exclusions, but the size of a charity’s portfolio made no difference as to whether a charity applied such policies. By a ratio of two to one, charities felt that having an ethical policy did not affect investment performance. However, for those that believed it did have an impact, all felt the effect on returns had been negative.

Despite a growing interest in fossil fuel-free investing, few charities had taken action

Although the topic of fossil fuel-free investing had seen significant coverage in the national press, only 4% of charities had adopted some form of fossil-fuel exclusion, compared with 25% of charities which had debated the issue and decided to take no action.

Women made up over 30% of all trustees in the UK charity sector

For the survey as a whole, the average charity had 9.6 male trustees, and 4.4 female trustees, meaning that women were better represented on charity trustee boards than on the boards of the average UK plc.

50% of charities had set their fund managers an annual total-return target (incorporating income and capital gain)

Charities in 2015 also seemed more confident about their total-return targets being sufficient to meet their obligations and commitments, with 89% believing their targets would be adequate, compared with 79% in 2014. Recent changes in regulation from the Charity Commission have made it easier for charities to adopt a total-return investment policy. When charities were asked about their biggest concerns for investment portfolios in the future, ‘caution’, ‘growth’, ‘diversity’, ‘income’ and ‘volatility’ were among the most prevalent themes, reflecting the challenges many charities are facing with their investment portfolios at this time. We hope the 2016 survey will be as valuable as the 2014 and 2015 surveys in providing snapshots of charities’ current views, positioning and practices. The challenges facing charities this year are likely to be at least as great as last year, and being able to access the collective wisdom of a broad cross-section of your charity peers may assist you in deciding which path to follow. We hope you will choose to share your own experiences and thoughts by completing the 2016 survey over the next few weeks. If you would like to find out more, please visit

Important information The opinions expressed in this document are those of Newton and should not be construed as investment advice. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested. Any reference to a specific country or sector should not be construed as a recommendation to buy or sell this country or sector. Please note portfolio holdings and positioning are subject to change without notice. In the UK, this document is issued by: Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority.

This post was last reviewed on 16 August 2018 at 14:43
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