Next, we will be uncovering the five reasons we believe that charities are different from Private Clients, beyond the obvious implications of tax.
Time horizon
“A few years ago, I recall asking a Bursar of a prestigious University College to complete a risk questionnaire – when it came to the box on time horizon. He stared at me in disbelief as there was no option for over five hundred years.”
Clearly not all charities have been around for that length of time, but many would like to feel that their time horizon is in perpetuity, or in the case of a medical charity until they have found a cure. With this in mind, some trustees may choose to be more aggressive with their asset allocation towards equities, which have outperformed bonds and other assets over the long term. Contrast this with a private client whose portfolio would normally become more conservative as they age.
Income
Historically, income has played an important part of the total return for charities. This remains the case, with many trustees seeking a degree of certainty in funding their future philanthropic projects.
It makes sense to look at sources of income like infrastructure funds, and property for example, when considering the asset allocation for charities. These are also assets which hold a level of familiarity to trustees, benefitting wider discussing with their stakeholders.
Ethical restrictions, ESG and impact investing
This is changing, but charities have been well ahead of private clients when it comes to ethical restrictions, ESG, impact and engagement when considering the companies or funds they invest in – these are things that many trustees view as a priority when writing their investment policy document and in discussion with their Investment Manager.
Investment funds
There are investment funds that only charities can invest in or are specifically designed for charities. The best example of these are charity property funds that are only available to UK registered charities and are especially attractive due to their focus on ESG. These funds are particularly beneficial to charity clients due to the fact they do not pay Stamp Duty Land Tax.
Benchmark
Finally, deciding which benchmark to use to measure performance. Many managers use private benchmarks to assess long-term performance. For charities, it may be more appropriate to use the ARC Charity Indices, so that you can see how your performance stacks up relative to other charities.
These are five of the many differences between managing money for charities that merit discussion when you next meet with your Investment Manager.
If you would like to discuss any of the above with a member of our team, please contact us at [email protected].