We are often asked if a charity needs to employ a specialist charity investment firm.
After all, a charity that has investments or has cash to invest has a wide range of options to choose from. Active management, passive, pooled funds or segregated portfolios, there are many ways a charity can get exposure to financial markets. There are over 1,400 investment firms in the UK and over 3,000 different funds according to the latest Investment Association research.
Of course, charities and their trustees are free to invest where they wish, and larger endowments will have the resources to engage firms or funds both in the UK and internationally for a wide range of assets. For most charities a UK-based investment solution will be suitable and the likely choice. Why might a charity specialist be a better option?
Charities and their endowments are different to other investors. Unlike pension funds or individuals, they do not necessarily have defined liabilities and mostly have an unlimited time horizon, so their risks and return needs are different. Investment managers who specialise in charities understand this. They also understand the need of a permanently endowed charity or one that seeks a total return, with a certain amount of annual income. Reporting on investments and environmental, social and corporate governance is also a key ingredient to any charity relationship, as charities need to account for their investments and adhere to SORP accounting.
Few if any professional investors have heard of CC14, the Charity Commission’s guidance on investment for trustees. Most IFAs will not be aware of Charity Authorised Investment Funds (CAIFs), specialist charity investment funds that are designed for the sector. Charity investors are often more forward-thinking when it comes to responsible and impact investment than other investors, factoring in both the need to invest ethically and potential reputational risk of investing against their charitable mission.
Specialist charity investment managers understand all these issues that are peculiar to the not-for-profit sector. Their services are geared to meet the needs of charities and offer a wide range of investment solutions from CAIFs to segregated portfolios. They also understand the trustees' responsibilities when it comes to investment and many are charity trustees themselves.
At Yoke we keep a strong overview of the charity investment market. If you require further details, please do not hesitate to contact us.