The charity investment tipping point

The research, carried out by The Centre for Charity Effectiveness at Cass Business School, identifies, for the first time, the barriers to setting and executing an appropriate investment policy and provides a toolkit for trustees to identify their own individual “tipping point” where they are comfortable moving from cash holdings to investing for the first time.

With over 5,000 UK charities sitting on over £16.7 billion of uninvested cash, the report is designed to help charities identify their own unique barriers to investment whether that is people, policy & process or public perception barriers.

ASC has identified that this understanding is the first and most important step towards investing.

Through asking the right questions, trustees will be in a stronger position to develop their own investment policy statement that supports their goals and ambitions. 

They can then take an informed decision on the correct approach to managing their investments. 

The research identified four important questions that charities must ask themselves on their journey from holding cash to investing:

• How much cash do we need to operate?
• How much cash should we hold in reserves?
• The “tipping point” – should we invest our surplus cash?
• Should we hire an investment manager?

While these questions may seem straightforward to answer, the analysis of the quantitative online survey revealed common barriers, real and perceived, that lead to inertia and biased choices which hold charities back from reaching their tipping point to more active engagement with investing:

• A lack of knowledge
• Fear of reputational damage
• Fear of loss
• Fear of the regulator, and
• A lack of clarity over what their policies allow

Fear featured prominently in the survey – fear of loss, fear of reputational damage and fear of the regulator. There was also the fear that inflation will erode the value of cash holdings.  The toolkit in the report will help charities identify where they need support and guidance and are a valuable and practical resource along the investment journey.  

Julie Hutchison, charities specialist, Aberdeen Standard Capital, said: “Trustees have a duty to ensure that charities are invested appropriately.  As our research identifies, in practice there are many barriers to moving from holding cash to investing and each charity will have its own tipping point.

“Many charities do recognise the value of prudent investment management and see the opportunity to use environmental, social and governance research and ethical screening to align their investment strategies with their cause.  However many good intentions are yet to be actioned. 

“Investment involves risk but need not involve fear.  By understanding the investment journey and knowing when help is required charities can move beyond their tipping point.” 

Cass Business School conducted a three-phase research project exploring attitudes to investment, investment knowledge, governance structures, decision making processes, openness to change, the level of trust in advisors and organisational specifics. The research was structured as a quantitative online survey, face-to-face interviews with trustees and finance officers and a literature review.

To read the full report click below:

https://www.aberdeenstandardcapital.com/ASC_Charity_Tipping_Point.pdf