Clients who revive income from individuals and funding supplied by direct debits have seen a constant stream of income possibly reflecting the fact regular donors have not experienced reductions in incomesReflecting on an extraordinary year, we were interested by an observation from a leading UK fund management firm. During the year the net amount of assets the firm held for pension funds and private individuals has gone up, while charities invested capital has dropped. Why is that the case when despite the dreadful general impact of Covid-19, most financial assets have risen in 2020?

Perhaps unsurprisingly, pension funds have fairly short term needs with fixed liabilities and undoubtedly benefitted from global central bank support. Private investors have generally survived the year with an increase in their capital, while expenditure has on average dropped as they have not been able to spend on holidays or have put off purchases of large ticket items. 

Conversely, the global pandemic in 2020 has had a negative impact on charities finances. While they have been on the front line of supporting communities and individuals during the Covid-19 crisis, many organisations face rapidly-increasing demand for support at the same time as their incomes have been shrinking dramatically.  1 in 10 UK charities are facing potential bankruptcy according to analysis in June by independent charity Pro Bono Economics, who predicted a £6.4bn loss of income over the six months to December 2020.

Of all the impacts of the pandemic, we were particularly taken by the research from academics at Birmingham and Southampton Universities. They found that many charities in England and Wales had low levels of financial reserves to fall back on and just over a fifth had reserves equivalent to less than a month’s spending.

Despite the gloom, we see some positive aspects in the UK charity sector. Speaking to our clients during the year has highlighted a variety of interesting observations:

  • Grant making charities have significantly increased their spending and dipping into their reserves that have accumulated over previous years
  • Charities who receive income from individuals and funding supplied by direct debits have seen a constant stream of income possibly reflecting the fact regular donors have not experienced reductions in incomes
  • While there has been an increased focus on liquidity and the need to hold possibly higher cash balances to compensate a reduction in income, cash earns next to nothing so careful consideration needs to be taken to see if charities are sitting on cash they are not going to spend
  • The pandemic has increased the interest in responsible investment on all fronts, from ethical/environmental, social and corporate governance to social and impact investment. We do not have a client that has or is not considering responsible investment. Matching this with the different approaches investment management industry applies continues to be difficult
  • Investing into the broad UK economy has been a relative disaster. Both the UK stock market and property have lost value compared to other assets, partly due to the make up of the UK economy, Covid-19 and Brexit
  • Many are expecting 2021 to be as challenging as this year and making financial plans for 2022, with the hope of vaccinations to bring some degree of normality

As we approach Christmas, an ancient festival and a time associated with giving, can charities with money go further? 

No one has ever become poor by giving (Anne Frank).

Categories: Challenges, Endowments, ESG, Expenditure, Fundraising, Governance, Grant-making, Investments, Reputation, Reserves, Risk, Strategy
Yoke and Company is the trading name of Yoke Financial Consultants Limited, incorporated in England and Wales (No 10787996) and registered at 6 Normanhurst Road, London, SW2 3TA. Yoke Financial Consultants Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 826126)
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