Knowledge Hub

By Brewin Dolphin’s Head of Charities, Ruth Murphy

Brewin Dolphin’s recent research examines the investment and other financial challenges facing UK charities. The findings from the research with over 100 charities, reveals heightened concerns with respect to risk management, political uncertainty and the prospect of a global recession. Here are some of the headline findings and some tips on how best to navigate the uncertain times ahead.

The pressure to sustain services and grant-giving when the ability to generate income is tougher was a key finding from the research. This is illustrated by the pressure to deliver contracts that always want more for less and provide crucial services in a challenging and uncertain economic environment. Historically, some were providing the ‘cream on top of the milk’, but many find they are increasingly plugging the gaps left by a lack of government funding and making money available to fund essential services and equipment which would otherwise not exist.

Main concerns

The main concern affecting the majority (64%) of respondents was the need for income (similar to findings from our 2017 research), followed by investment risk (up from 27% in 2017 to 36%) and political uncertainty (up from 29% to 35%), together with a significant increase in concern about the risk of global recession (up from 11% to 26%).

Risk management

When asked about their biggest investment risk concerns, low growth, low-interest rates and volatility were cited by 48% of respondents; and those who are worried about the risk of ‘absolute loss’ increased from 23% in 2017 to 31% of respondents this year. Participants commented on the price of assets, the challenge of beating inflation, and the potential for a fall in investment returns. Charities commented upon the expectation that returns are going to be volatile and lower than they have been recently.

At Brewin Dolphin, we believe that it is essential to stay focused on long-term investment objectives rather than short-term market movements. The finance directors and trustees interviewed for the research shared this view. Albeit many charities are risk-averse, but as they are able to take a long-term view, they can put more in equities than an investor who is risk-averse and has a shorter-term view. Grant-making charities suggested that they are in a stronger position than service providers to deal with pressure on funding and income and could better “weather the storm” of a downturn in the economy: “We are long-term investors. If we have a couple of years where the income isn’t very good, we don’t need to take the extra income, we just make fewer grants that year.”

Funding and income

This difference in confidence was also evident among respondents to the survey; when asked how confident they were that funding levels will enable them to meet their charity objectives, 61% of grant-making charities were confident compared to 30% of service providers.

Grantmakers were significantly more concerned than service providers about an economic slowdown being a risk to future income (61% of compared to 45% of service providers). Charities commented upon the potential loss of government funding, rising costs, covering costs in a low inflationary environment and the negative implications of political uncertainty.

The majority of respondents (70%) had not discussed a different approach to managing their portfolio (in relation to income) with their investment manager. This surprised us in 2017 and does so now. It suggests, perhaps, that for some charities the main income and budget discussion is sitting outside the investment debate and meetings and this could be an opportune time to bring it into the mix and annual planning discussions.

Alternatives

40% of respondents overall are currently invested in alternatives, up from 36% in 2017. Property is increasingly seen as mainstream and not an alternative. It and other alternatives are useful diversifiers.

Five thoughts on managing uncertainty

Charities are understandably concerned about market uncertainty, particularly within the context of ongoing low interest rates and rising costs. In our experience, there are five key considerations that can help to ensure financial plans stay on track:

1. Budgeting for today and tomorrow - align your invested assets with your cash flow plan
2. Beating inflation - using your investments to preserve real value
3. Tolerating volatility - and be able to withstand it
4. Understanding diversification - of assets and of income sources
5. Considering the bigger picture - investments are part of the wider financial sustainability plan

The research identified the importance of regular reviews. Brewin Dolphin’s Charity Team has regular input to this debate, given that clients are served by fund managers who both manage the money and the relationship, ensuring that nothing gets lost in translation.

You can download a full copy of the report here.

To discuss how Brewin Dolphin’s charity team can help your organisation, please email: charities@brewin.co.uk

The value of investments and any income from them can fall and you may get back less than you invested. The information contained in this blog post is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this blog post are not necessarily the views held throughout Brewin Dolphin Ltd.