Good causes are missing out on ï¿¡750m a year because charities are not managing their vast endowments properly, Investment Opportunity a report by the Institute for Philanthropy has shown.
A survey of 277 charities, including the Wellcome Trust and the Joseph Rowntree Foundation, found that trustees with responsibility for ï¿¡56bn routinely consider investment issues “off the radar”, with the result that returns have been 13% lower than the FTSE all share index.
“It is clear there is a missed opportunity here,” said Beth Breeze, the author of the report. “Almost a third of charities do not put investment services out to tender and there’s a suspicion that they go for an investment manager they like hanging out with rather than a cutting-edge fund manager.”
The average investment return from UK charities over the past five years was 8.8% a year, far lower than the 12.4% achieved by US endowments, according to the report Investment Opportunity. The institute, a non-profit organisation, blamed “risk-averse” policies which favoured fixed-income investments over a diversified portfolio of UK and foreign shares. The worst performing charity recorded an average return of 3.1% over five years - barely better than inflation.
“This compares extremely unfavourably with the 17.8% per annum achieved at Yale over the last 10 years and raises the question of how many more billions of pounds might be available for spending if the principles of favouring equities over fixed-income investments were properly applied here,” said Breeze.
Yale University’s endowment has grown from $5.8bn to $22.5bn over a decade using aggressive investment management.
“This will be a big disappointment for people who give to charities,” said Adam Rothwell, the director of Intelligent Giving, which analyses charity efficiency. “Donors are always coming under pressure to give more, yet it is clear an improvement in investment tactics could easily raise more than the man in the street could ever hope to give.”
Danny Truell, chief investment officer at the Wellcome Trust, the medical research charity, accepted that charities need to take greater risks Investment Opportunity.
“Charities have the ability to do exceptionally well in their investments in a way pension funds can’t because they are hampered by a set of liabilities,” he said. “Risk is something we have to take to succeed.”
Tags: aggressive investment, charity efficiency, edge fund, investment issues, Investment Managemen, Investment Management, investment manager, Investment Opportunity, investment return, Investment Services, joseph rowntree foundation, man in the street, nvestment Opportunity, profit organisation, rothwell, share index, trustee, wellcome trust, yale university