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 (www.msci.com/esg-ratings). 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?


A false stop - having confidence and conviction on future returns


We've just come across an old report dated 2013 from an investment management firm.

It sensibly suggested that portfolio returns had been so good that they must now be unsustainable and charities should begin to reduce the spending they funded from their endowment. There were many other similar reports making the same point and also suggesting charities should reduce their spending. So what did happen?

In fact the world’s stock markets went up by almost 16% a year for the next four years, an astonishing rise by any standards, especially when inflation barely moved above 1% a year. Longer-term analysis, based on Barclays data, shows the real return on UK and US equities, from 1900 to 2016, was 5% and 6.6% respectively.

If you were a charity trustee or executive in 2013 and received that advice from your professional adviser, what did you do? Did you do as advised and accept a lower distribution and lower spending? If you did, what choice did you have in the face of such confident advice?

Think of it another way: if a fundraiser had said that they wanted a lower their fund raising target for the year because they had done so well recently it couldn’t carry on, what would you do? Both markets reply on past performance and there is no guarantee that this will continue.

A trustee should listen, understand, push back and then decide. Trustees and CEOs are much better at pushing back when they are familiar with the subject, such as fund raising, but in a world such as investment management it often appears too complex or high risk to ask some of these very basic questions.

This shouldn’t be the case, and trustees have a duty to push back to make sure that the advice they are being given is reasonable and reliable - whether its comes from a fund raiser or a fund manager. That’s the law and this responsibility lies ‘upstream’ of the normal business of the investment management community and amongst trustees and the executive themselves. One common barrier to this taking place is the absence of any ‘neutral’ support that charities can call upon when trying to push back – everyone has an angle - so the key is to find the one that is most trustworthy for the task in hand. 

For most charities, they have a degree of discretion on both income and expenditure. Even the best budgets allow or forecast for some volatility of these measures as there is no certainty. 

There can be no doubt that where trustees did push back against such advice in 2013 and stayed with their spending plans (or even increased them), their charities would have made a distinct additional contribution for many people who were experiencing times of considerable hardship. If they had been wrong, they still had the chance to pull up the drawbridge, but not before they had made sure everyone was inside.

“Please, sir, I want some more.”


Oliver Twist famously asked Mr Bumble, the workhouse Beadle, for "More" in Lionel Bart’s fabulous musical version of Charles Dickens’ novel. We all remember the response he got (“MORE?”) as well as the incredulity of the other boys who could not believe anyone could be so impertinent (or naive) to have even thought of asking that question.

What happens when charity trustees want some more? What happens when they want to spend something extra on their beneficiaries? Can they ask for more, and who should they ask? Who is Mr Bumble today? This is more real than one might imagine; Camelot has just announced that last year it gave £300m less to good causes than the year before as sales decline. Who will make that up for the voluntary sector? The Office of Budget Responsibility has just forecast lower growth, so lower tax revenues, so lower support for the most vulnerable. From whom should trustees ask for more?

One contemporary version of Mr Bumble are charity trustees themselves, and through them their investment managers. If trustees will not tolerate the ups and downs of a higher returning investment portfolio, then there will be no more. The question must be for trustees first – is there more they can earn for their beneficiaries? After all, without risk there is no reward, so should they take more risk. These are difficult questions of risk appetite, but after all where would young Oliver be now without his moment in the limelight?

Why Tinder might be the next technology revolution for charities


It is interesting to see that Amazon is launching its give-as-you-shop service in the UK, which will be called Amazon Smile.

The site will be exactly the same as the standard Amazon site, with the same selection and prices, but the added option of allowing its shoppers to give to one their 10 partner charities.

This comes hot on the heels of Facebook’s launch of its Personal Fundraisers service, enabling users to raise money for themselves or something they care about.

Social media, technology and artificial intelligence are disrupting the traditional activities we are accustomed to. If it works and is cost effective, this must be a benefit for the charity sector faced with increased pressure, costs and regulation. Fundraising is an obvious activity that charities carry out, which will hopefully benefit from the Amazon and Facebook initiatives.

In the current environment charities really struggle to compete with each other, but what of the future? While it may be too difficult to consider merging with similar organisations, there is pressure for greater collaboration between charities and not-for-profit organisations to deliver funds or services to their beneficiaries.   

Step forward Tinder! Tinder is one of the leading social media apps that allows mutually interested users to chat and ‘hook-up’. Based on a number of criteria, users are matched and can anonymously view those with mutual interests. The app allows the user to anonymously like another user by swiping right or pass by swiping left on them. If two users like each other it then results in a ‘match’ and they are able to chat within the app. Available 30 different languages, the service generates 800 million swipes and 10 million matches a day. 

It may be too far at this stage to suggest Tinder is the next social media business to disrupt the charity sector. Their focus is perhaps a little more frivolous than getting serious charities to work together. However, it is worth thinking about as there are two areas that are almost certain to change in the future. Technology and artificial intelligence are changing the way we live and charities need to collaborate more.

Intellectuals solve problems, geniuses prevent them


The title of this blog is a quote attributed to Albert Einstein, who many people regard as a genius, and his words neatly encapsulate the best way to solve problems.

Many advisors and consultants provide a valuable services to their clients. They tend to come from a range of industries, with skills and experience in their field, offering solutions to problems that exist in organisations. 

Consultants often help improve organisations by assessing weaknesses and making recommendations. Working alongside the executive and trustees, a good consultant can see though a problem and help make decisions by providing the answers.

Providing an answer is all well and good, but it is possibly the wrong way to look at the problem. Take a charity that has a Chief Executive, Finance Director, Chairman and Trustees, who are overseeing the day-to-day operations and providing strategic vision for the organisation. They sensibly outsource functions that the team cannot manage in-house, such as banking, audit, legal, IT and fund management. But who is co-ordinating these professional advisors?

At times, great value can be gained by bringing in an independent organisation or person to solve a particular problem, give impartial advice and the answer. However, the first fault generally begins with the answer. Human nature predictably defaults to looking at the problem and providing an answer. We are programmed to be subjective. Consultants and advisors are no different and in many cases are restricted in giving a truly independent opinion. So the solution to the problem is often framed to the answer and the job is done. But is it? 

It is better to ask some of the questions than to know all the answers. The best method to solve a problem is to appreciate a situation. This is achieved by looking at all the issues an organisation faces and asking the right questions. Faced with a problem, all too often a Board will rely on a particular member or advisor to come up with the answer.  This is often due to the fact that they don’t know the question or are too afraid to admit that they don’t understand the problem, let alone the question.

While a Board can delegate certain functions, they ultimately have a collective responsibility, a legal duty for the running of the organisation and making decisions. Not making a decision, as the problem is too difficult, is a decision in itself and it is usually the wrong decision!

To have an objective evaluation of the problem, you should ask the right questions. Working through a list of questions by assessing the issues will provide answers, which will form several alternative solutions to the problem. It is only at this point that the correct cause of action can be taken. If that solution doesn’t subsequently work, the Board has already taken the necessary assessment to amend the plan as it evolves.

It is the Board that has the legal responsibility to provide the answers and act upon them. A good advisor provides the questions.