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Adam Rothwell
- Wednesday, May 7, 2008
CHARITIES COULD BE throwing away £750 million a year through laziness, according to a report out last week (PDF) from the Institute for Philanthropy.The problem lies with charities’ investments, which last year were worth a staggering £54 billion. According to the Institute, charities are earning paltry returns – as little as 5 per cent a year in some cases – which could easily be boosted if they took investment management seriously.
It’s hard to disagree with the Institute’s conclusions. But the report got us thinking about a bigger question. What are charities doing with that £54 billion in the first place?
The usual answer is that they are using it as security. Almost all big charities keep the equivalent of a few months’ running costs in reserve, in case donations suddenly dry up. For some charities, that sum can equal many millions of pounds. We wanted to know what they were doing with it.
But finding answers is tricky. Take, for example, the National Trust (see profile). This mega-charity is sitting on almost £1 billion of investments, mostly in the form of shares. Last year, it earned a return of 11.2 per cent on this capital, of which it used £30 million to help with the upkeep of its stately homes and gardens.
"Much of the time, it's our money charities are looking after"If you’re a member of the Trust, your subs may well end up in the charity’s investment pool. So you’d be justified in asking where your cash would be invested, and you’d be right to be question whether the Trust was using your cash to the best possible effect.
But if you wanted to find answers to these questions, you’d be hard pressed. In its annual report, the Trust doesn’t give anything beyond the most basic details of where and how it invests its cash; and there’s no word on how its investment strategy might change in future. What you could find out, though, was that the 11.2 per cent return it earned last year was disappointing – which is hardly a relief.
It doesn’t have to be this way. The Wellcome Trust, the biggest charity in Britain with assets of £15.6 billion (yes, really), does a sterling job of explaining its investments, and its investment strategy, in painstaking detail. It even includes some graphs and easy-to-understand questions for non-accountants like us.
All charities with big investments should provide this sort of info. After all, much of the time it’s our money they are looking after. Charities should explain what they are doing with it.
........I agree Martin. I'm not sure quite where the line should be drawn, but I'm convinced that something along the lines of 'The Trustees consider it prudent for the charity to maintain reserves of between six and nine months running costs' comes anywhere close to answering the reasonable questions of an 'intelligent giver'.
The organisation that I'm currently working for at least goes on to say that the approved level of reserves was decided upon after a comprehensive risk analysis (so not just pulled out of thin air then!)
Don't shoot the messenger
So it comes down to proper use of money?
Either using money immediately (that year), or investing it to keep on spending money in leaner years.
I've read many reports, some of them giving me far too much information about their investments. Others have a simple statement about what they won't invest in and that risk is checked at every meeting.
So exactly how much should any size charity report on for its investments? 1/2 page? 20+ pages?
Not forgetting that the larger the report, the more paper to print it - something any charity involved in conservation should be aware of.
Catman,
I have a lot of sympathy for your views - but I don't agree with your conclusions.
Of course, I wouldn't expect National Trust members to cancel their subscriptions because of the Trust's foggy explanation of its investments. I'm a member myself, and its lack of disclosure doesn't make me think ill of the Trust at all.
Likewise, I undertstand that the Wellcome Trust has a much greater impetus to report in detail on its investments. It has more of them, and its success as a charity depends on their performance to an unusual degree.
But this doesn't alter the fact that charities like the National Trust should learn from Wellcome's approach. It doesn't take much to put together a pie-chart showing how investments are distributed, or to provide a graph plotting the charity's investment performance against the wider market. Likewise, being a bit more forthcoming about future investment policy can't be hard - since we assume that chatrities with so much in the bank must have this policy lurking in a draw somewhere.
Most people, I agree, will - and should - support a charity after seeing the impact of its work. But charities look after donors' money on trust. They should try their hardest to justify this.
Adam, Intelligent Giving
Afternoon,
Your example of the National Trust is a lot more relevant than that of the Wellcome Trust.
The Wellcome Trust is a funder, distributing its wealth to a range of causes. These funds are based on how effectively they have invested their reserves. Equally, they need to report primarily to those who funded the pot which is not me, or the average person on the street. So, the main remit of the Wellcome Trust is to invest effectively to fund other causes...of course they will be good at investments and reporting on it. Much the same way that Intelligent Giving are good at writing transparent Annual Reports as your main remit is to....analyse annual reports for tranparency.
I still do believe (and call me arrogant if you wish), that the majority of people who wish to give to a charity, will be motivated by the proof that their donation is making a difference. Some will be confused by a balance sheet, others will want the bottom line and a few will want the whole shebang.
When private companies release figure about their trading, do they tell us everything or do they give us a number (Shell made £7b in the last 3 months)? They have the nitty gritty for the shareholders.
Do you think that National Trusts members would cancel their subscription because of the level of investment reporting in their annual review?
CM
Having a background which encompasses both fundraising and PR, I think it's absolutely critical that charities take the trouble to fully explain their financial position (including reserves). At one organisation in particular I was mortified to hear a Finance Director state 'that's our policy and that's all they (the donating public) need to know'.... He may have had a point had the policy actually contained a rational explanation for how the six to nine months of runnning costs was arrived at. As it was the 'policy', really nothing more than a bald statement of fact, amounted to 'this is what we need and as we're the experts you'll just have to trust us.' Oh, the arrogance.
Don't shoot the messenger
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