Getting ready for the tide to go out…


Charity investors are offered two ways of investing: a discretionary manager who buys and sells shares directly for their client; or through an investment fund, usually called something like ‘Charity Income and Growth Fund’ and which have risk appetites varying from cautious all the way through to adventurous.  

The former (discretionary) approach requires the manager to carry out a suitability test so they understand each charity’s financial status, its need for income and its capacity to withstand capital losses. This includes looking across all the charity’s assets and liabilities. With a single investment fund it is not possible to do this. The manager cannot tailor the fund profile to the needs of each individual investor – it is a single product designed to have a specific risk profile.

A charity will commonly seek to invest in a ‘medium risk’ fund. However, the fund manager is only regulated to make sure the fund itself is ‘medium risk’ which means that the client, if they have other assets, may well have a completely different risk profile. If, for example, they hold property the overall risk the charity is taking might better be described as ‘adventurous’ rather than ‘medium risk’.

What should Trustees do? Trustees must remember that investing in a fund that is ‘low risk’ only describes that single fund. It certainly does not describe the charity’s total investment risk if it holds any other assets outside the fund. That’s why it is so important for trustees to understand the risks they are taking in the round and not simply to assume that labels on individual investment products apply to their entire charity.

Regulations don’t allow firms that offer products to consider the risks of the other assets and liabilities of the charity, only the risk of the funds they offer. That’s why independent advice is so important for any trustee body that is not confident in making these decisions about their total risk.

After ten years of very good stock market returns, we hope that all trustees will find that they are properly covered when the tide does finally go out.

Who protects the protector?


The government’s newly issued Civil Society Strategy has been described by NCVO as “an encouraging start but government could do more”.

One area where more work is certainly needed is in section 7 “Funding and Financing the Social Mission” where it says, “The government is working with the Charity Commission and UK Community Foundations to release at least £20 million over the next two years from inactive charitable trusts to grassroots community organisations.”

Charitable money shouldn’t be left doing nothing (it’s a common complaint of ours), and if there are inactive charitable trusts they should be reactivated or closed to make sure the money does reach the intended beneficiaries.

As we know, every charity has a defined area of activity that it exists to serve set out in their Objects clause, even inactive trusts. The job of the Charity Commission is to ensure those Trusts’ delivery of their purposes is properly fulfilled and to protect their assets from being expropriated to a new purpose (in this case, the grassroots community organisations). Trusts that are currently inactive should apply their money to their original purposes, and if not, to ones that are similar. If a benefactor had left their wealth to treat a particular medical condition, medicine should continue to be the beneficiary.

We trust that the Charity Commission will continue to protect the chosen beneficiaries, and not allow their interests to be subverted for political gain. Who will support the Commission in that role? As the famous Juvenal quote reminds us Quis custodiet ipsos custodes? The answer is that only the law can protect the protectors, so we all need to be vigilant in how the law is used, even in this small example.

Why charities need to engage


At Yoke, we like to cycle to meetings. It keeps us fit and cuts our carbon footprint. While some say cycling in London or any city is dangerous, we manage the risks and take appropriate time between meetings, keeping within the law. The biggest risk on the road tends to be other cyclists or pedestrians, who do not appear to be aware of the rules of the road. 

We notice that it common for pedestrians at crossings wait for a bike to pass, when it is the person on foot’s right of way. This is because many cyclists think they are in charge and ignore the highway code by crossing red lights and zebra crossings, so pedestrians are naturally confused and avoidable accidents can occur.

An excellent recently published report entitled Time and Money highlights that charities who rely on investments to support their long-term mission can take advantage of their ability to make and spend more money and encourage good corporate behaviour. However, short-term thinking can get in the way.

Trustees can unwittingly be blown off-course and when investing for the long-term. It is important that Trustees should be committed and ambitious, not complacent, continually attending to the proper management of their assets but never losing sight of the main charitable goal.

Why do we link the poor pedestrian to a report about investment management for charities?  In many cases an investment manager attends the charity meeting and for usually 30 minutes, they entertain client with stories from the market. Rarely does the charity engage. Like the pedestrian at the crossing who is used to the cyclist ruling the road, charities tend not to challenge. 

Charities must engage, not be entertained, when it comes to investment. They must understand the risks and investment objectives. While the manager can advise, it is the charity that is in control and they must have the confidence to remind themselves of what they want from these assets, assess whether or not they are getting what they want, and if not, decide what action to take.   

Investment managers should also encourage their clients to be engaged by basing their presentation of how well they are fulfilling the mandate they have been given against the benchmark the charity has set. Fabulous tales of the far east and what’s going on in the Silicon Valley is simply entertainment and adds very little to the Trustees’ understanding of whether they are achieving their long term goals.

Like the pedestrian, trustees need to enforce their right and be in control of where they are going to avoid unnecessary accidents.  

When charities derail


The accompanying photograph for this blog shows a Great Northern (Govia) train driver, who had to disembark from the train to check the station board and confirm the stopping points for his non-stop train! It reminds us of charities who may have great plans and a timetable of events, but what happens when these plans get derailed?

New train timetables were introduced on 20 May with the intention to provide more trains, more seats and new journey opportunities. Due to the large number of changes involved, Network Rail did not finalise the timetable until much later than planned. This has created chaos for train companies who failed to carry out specialist training for drivers required by the new schedules. It has resulted in misery for passengers and a blame game for all those involved. 

It is often said that charities are also on ‘a journey’ and always want to provide more for their beneficiaries, which is a poetic way of describing their strategy. They set a strategic plan with budgets, milestones, expected income and expenditure. These plans can go array due to unexpected events including planned income not materialising, an increase in demand for a particular charitable service, a contract failing or general volatile economic conditions. Like a passenger on a train, the charity is reliant on others to get them to where they want to go.

A passenger may decide to give up on the train and jump in their car. Equally, a charity may decide it can manage itself and avoid the dependency of others. This might include managing physical property or making investment decisions, or working out the balance to hold in each. How do trustees know if they have sufficient expertise and resources to make these strategic decisions themselves? More often than not they do but they are often held back through a lack of confidence about what they are allowed to do or lack of experience. 

A common issue we see at present is charities that have enjoyed huge growth in assets but cannot work out how to translate this growth into a higher spend on their charitable objects. This is because they are locked into a world of only spending income. While it might seem prudent to save for the future, charity trustees who see their assets grow to new heights on rising stock or property markets, will all too often see this wealth as a sign of success, rather than one of failure. After all, it is their spending that makes them charitable, not their saving.

We have grudgingly become used to unreliable and overcrowded trains in the UK. Charities must not allow the public to take a similar view of them by ensuring their financial governance is robust to weather the highs and lows of their journey, without needing stop half way through to see where they’re going. 



Yoke is a year old. 10 things we have learnt about charities.


Yoke and Company is officially one year old. The company founders are a lot older and we are amazed that the year has gone in a flash.  So what have we learnt and what has changed?

1.      Regardless of all the Charity Commission’s advice on financial governance, it remains normal for trustees to say ‘I don’t do money’. If it’s baffling, it is usually just because the issue has been badly explained.

2.      Being regulated means Yoke never hesitates about the investment advice we give, which goes beyond simply comparing managers; The FCA’s review on investment consultants having conflicts of interest or not being regulated highlighted many issues that have yet to be addressed.

3.      Charity decision making lurches from one quarterly meeting to another. They always have, and probably always will. Difficult decisions often get deferred. No decision is a decision in itself and it is usually the wrong one.

4.      Too many charities regard success as a growing pile of money. Surely this is a measure of failure because the money is there to be spent on charitable purposes.

5.      Charities tend to be cautious; trustees should take more risk for their beneficiaries, just as a parent would for their children. The parents don’t enjoy the rewards, but that’s not why they do it.

6.      Penny wise and pound foolish – investment managers can be expensive but not that different from each other. Getting your risk budget right is free and makes you most of your returns. Obtaining help in this area difficult to find.

7.      The rewards in winning new investment business are huge, so the industry is incentivised to get trustees to change managers frequently. Less change will provide better long-term results. 

8.      The public trust in charities has declined after successive years of media attention and bad practice from a few poorly run organisations. Kid’s Company is becoming a distant memory after Oxfam, but charities need to be less defensive and bolder about the great work they do.

9.      We continue to meet so many amazing charity executives who have passion and bold ideas. The problems manifest when these ideas are passed to the trustee board who struggle to share the confidence to take controlled risks with their assets.

10.   We keep looking for someone else offering independent financial assistance to charities, concentrating on the ‘upstream’ problems that concern the overall financial decisions. Combining this with regulated and totally independent investment advice to charities of all sizes. This currently makes Yoke fairly unique in the UK. 


Why are fund managers becoming insecure?


The active fund management industry is going through an odd patch at the moment and showing signs of insecurity after a decade of confidence. 

Despite the economic crisis ten years ago, the fund management industry has generally ridden a prosperous wave as markets have been propelled ever upwards, with much thanks due to quantitative easing.  According to the Investment Association, the trade body for the fund management industry in the UK, assets under management have doubled to £8.1 billion by 2017. The FCA estimates that operating margins have on average been 36%, comparing favourably against the broader economy where the average operating margin for all UK listed companies, including asset management, was 16%. This is partly due to increasing AUM growing revenues much faster than costs, again improving margins.  

With the rise in profitability, the industry has seen a rise in regulation with MiFID II being introduced in January 2018 and the GDPR coming in May.

So as assets under management and profitability rise, with greater controls through regulation, why is there insecurity in the industry? 

There is a growing consensus from the fund management community that the decade long bull market in real assets may be stalling and returns in 2018 will be negligible at best. Peer group investment performance has narrowed as many fund managers appear to be making similar market calls. Market veterans have seen this before and long-term investors will digest the current hiatus with no more than a slight hiccough.

Does the insecurity exist because of what could be a crossroads of profitability and greater transparency on costs and performance? Research from Invesco PowerShares, a passive fund provider, suggested that 67% of institutional and sophisticated investors believe that MiFID II will result in increased use of exchanged traded funds (ETF) by institutional investors in Europe. The research cites transparency oflow costs and management fees being the top reason given for the expected increased flows into passive investments. 

It might feel insecure about the future and facing margin pressure, but the fund management industry must have the confidence to set out its views on the investment markets, no matter how painful it might seem. Active managers should not worry how they look compared to their peers or the passive competition, but to explain clearly the headwinds they are prepared for and the ones they will let go. They should also be more explicit about the positives of successful active management over passive or ETFs in terms of counterparty and momentum risk.

Clarity on costs and performance is good for investor confidence. Managers must demonstrate conviction on their distinctive investment approach, so clients can make a more informed choice between them. If they cannot achieve this, the managers’ profits will suffer as clients move their money elsewhere. 


Grant-making, a moral dilemma


Q. When is a gift not a gift?

A. Most of the time.

A group of friends were discussing this question as we drank coffee sitting outside a café. A woman passed by and politely introduced herself as homeless and soon we had given her some money. Our friend said “you see – a genuinely gratuitous gift” to which we asked “…or did we pay her to leave?”

It is the fashion now to focus on impact and measurement in grant-making and charitable activity, but these terms are badges of commerce, not giving. ‘Getting better value from your gift’ is a laudable goal, but how often can an alcoholic return before our charity is exhausted? Limitless charity enables endless drinking, but only that would be a true gift, made regardless of the consequence. A requirement to stop drinking is no longer a gift but a transaction.

Once we set criteria we trade, and only haggle over the price. What matters is who sets the criteria.

Responsible investing


Once a source of anxiety for charity trustees is the topic of environmental, social and governance (ESG) factors as part of the responsible investing agenda, and most commonly, whether to introduce a negative screen against certain stocks which could undermine their mission.

Apart from the fear over a potential loss of return (the debate is still open about that), possible exclusions usually present themselves in a range of gently escalating considerations, making it very hard to work out where to draw the line between the acceptable and the unacceptable. For example, investing in a gun manufacturer is associated strongly both with school shootings in the US and with our national defence. Such an investment would be as disagreeable to a Quaker charity as it would be natural to a military one.

Where it was once a minor factor for investing, ESG considerations are becoming increasingly mainstream with MSCI, the mammoth index compiler, now running its own ESG index ( This index is used by some fund managers to construct their own ESG products, in effect outsourcing their own values to MSCI. MSCI organises its index ranking all firms as a leader or a laggard against their ESG criteria. The weakest stocks are excluded from the resulting ESG index because of their bad rating. This is similar to a credit rating score where the debt of the weakest companies (in financial terms) is given a ‘junk’ credit rating. Because this is below ‘investment grade’ mainstream, investors tend to avoid it, or expect very high returns to compensate them for the risk. The same could soon apply to the worst of the ESG offenders.

Signing up to an ESG index won’t help trustees make decisions about whether exclude armaments, but it will improve the quality of their portfolio in terms of how it is run, both for investors as well as society and the environment.  It’s a good – although not perfect – place to start in making the world a bit better. It will also save your board from anxious, inconclusive conversations about what it might do, if anything, before putting the whole thing in the too difficult box.

Looking down the wrong end of a telescope - how to save money for a charity


A charity recently contacted Yoke to evaluate their fund managers. It was concerned that after a number of years, there had not been a review of the charity’s investments. The finance committee felt they didn’t have sufficient knowledge of the investment universe and wanted to get some independent advice.


The charity had an investment policy statement that stated a need for income and growth in capital. It also had an ethical policy with a number of exclusions. The organisation had previously selected a number of charity common investment funds which were largely meeting the objectives of the policy and there were of no particular concerns about the mangers.


It would have been easy to look at the current situation, gather information on the funds and other competing investment managers, and maybe write to managers for views on the investment policy statement, asking for their past performance, charges and so on. We could have organised for the charity to interview selected managers and made the necessary changes to the organisation’s investment arrangements. With the investment review complete, the charity would have moved on, happy that they had dealt with this particular governance issue.


No one would argue that a periodic investment review is both good practice and a legal obligation for a charity.  Most investment people would argue that the cost and time of conducting this exercise would likely generate higher future returns by switching to a better performing manger. A few thousand pounds spent on the review today will generate extra tens of thousands in future it is hoped. This is the pattern of many charity investment reviews.


Why this particular project was so interesting and untypical of most charity investment reviews was that the investments were not the problem. It is easy to look down the wrong end of the telescope when trying to find an answer.


At Yoke we put the investments aside, as is completely necessary at the start of any review, we spent time getting a full understanding of the financial strategy of the charity. We carried out a review of how the charity earned what it spent, the nature of its reserves and as a result, how effectively they were using their capital. It became clear the charity was spending down its reserves over the coming years and had a critical need to do this.


It could be argued that faced with an annual deficit, the charity needed to take more risk with its assets to meet the pressure of increased spending. This would have placed increased short-term pressure on the finance committee and ultimately the trustees, who had already identified their limited investment knowledge.


With clarity from the finance committee, we were able to suggest that they split their funds between current reserves for secure liquid funds (needed to be spent in the short-term), and higher returning investments (for the long-term). Besides this, with a simple desktop analysis, the committee could see the existing investments sat comfortably within the peer-group of other charity investment managers but investing with more than one manager for a smaller pot of money seemed unnecessary. Having revised the investment and spending policies, the review was concluded in significantly less time, at a lower cost and which will help put the charity on a financially secure footing.


It is vital that investments are reviewed in the broad context of the charity’s complete financial picture.   So often, an investment portfolio is viewed in isolation, and primarily for return. The overall financial security of the charity has to be understood in the context of the available income, why the reserves are there and how they are being spent.


Just like looking through the wrong end of a telescope, the small things look bigger and the big issues look less important.  Unless the review is begun from the correct end, the outcome can cost the organisation considerably more than the price of the review itself.

Does inequality exist within charities?


Charities exist to provide help and raise money for those in need. They help overcome many inequalities that exist and help elevate hardship.

A recent report from Oxfam highlighted that the gap between the global rich and poor has continued to widen. Taking data from Forbes and the annual Credit Suisse Global Wealth data-book, which gives the distribution of global wealth going back to 2000, 82% of money generated last year went to the richest 1% of the global population while the poorest half saw no increase at all.

According to Oxfam, the richest 42 people on the planet had as much wealth as the poorest half of the global population. The charity blamed corporate power, tax evasion and erosion of workers’ rights as causes of the widening gap. It should be noted that the report has been queried by a number of critics, but few would argue that there is a significant gap between the rich and the poor.

Interestingly, there is a comparison with Oxfam’s report to recent analysis carried out by Fundraising Magazine, that used data collected from the top 15 UK fundraising charities’ accounts in the haysmacintyre/Charity Finance 100 Index.

Analysis of the fundraised income of these 15 charities found the combined fundraised income has doubled over a 20-year period, adjusted for inflation, from £1bn in 1996 to nearly £2bn in 2016. Macmillan Cancer Support was the fastest growing fundraising charity. Its fundraised income grew by nearly 250 per cent to £231m. It is unsurprising that the top 15 fundraising charities comprised of 5 health charities, 4 international relief charities, 2 childrens’ charities, RSPCA, RNLI, the National Trust and the Salvation Army.

If we also consider the latest Charity Commission statistics taken from the Register dated 31 December 2017, only 2,250 charities achieved a total annual income of at least £5m. Therefore only 1.3% of all charities in England and Wales received 72.2% of all income generated. Staggeringly, 154,740 charities generated just 27.8% of total income.

In 2017, Charity Finance magazine used data on long-term investment assets from the Charity Commission’s Register to analyse the UK’s wealthiest charities. It established that sector’s total investment assets were £113.7bn, of which £50.1bn was held by the top ten charities, and £74.2bn by the top 100.

What links these reports together is the that richest charities, such as Wellcome Trust, Garfield Weston, Esmée Fairbairn, Leverhulme Foundation and The Henry Smith Charity were created by a legacy of rich philanthropists. The list is not limited to Victorian or Edwardian wealth as the Children’s Investment Fund Foundation demonstrates. Looking globally, many of the largest charities and foundations have been created in recent years by living billionaires, such as Bill and Melinda Gates, who are included in the Oxfam report. 

It has to be appreciated that the wealthiest UK charities have been lucky to receive a legacy or benefit from disproportionate income as they support popular causes. But like the philanthropists before them, these charities are well governed, understand risk and maximise returns to further their missions.

Those charities that decide to support current and future beneficiaries have largely maintained and grown their assets with good management. They are careful how they grant money or engage in social investment but have undeniably distributed millions to smaller charities who have been less fortunate. 

Charities themselves can be the products of global economic inequality, so overspending may simply redress that balance. Arguably, charities sit on too much wealth and could spend more. From Warren Buffett to Lord Sainsbury, it is reassuring that many of today's philanthropists have stated that they will give much of their wealth in their lifetime. The Giving Pledge invites the wealthiest people in the world to pledge more than half of their wealth to charitable causes either during their lives or in their wills. Maybe it is time for charity trustees to consider why their charities exist and join the pledge by spending their endowment?