28/10/11

By Andrew Holt

Three quarters of charities are concerned about the impact of inflation on their assets over the next 12 months, yet the same percentage are not planning to change any of their investment objectives, according to a new study by Investec Wealth & Investment’s charity division.

With new figures showing the Retail Price Index (RPI) and Consumer Price Index (CPI) increasing to 5.2% and 4.5% respectively, many charities are at risk of seeing the value of their assets and income drop in real terms.

Investec’s study shows these indices to be the dominant measures of inflation among charities, with 60% of charities applying the RPI and 20% the CPI.

Despite this, Investec’s research shows that the majority are taking no steps to alter their current investment strategy.

As well as the threat of inflation on their investment portfolios, Investec’s research reveals that four in ten (40%) charities predict a drop in income from external sources over the year ahead, including Government funding and private and corporate donations.

As a result of the financial pressure faced by many charities, one in three (35%) believe they will become more reliant on their cash reserves over the forthcoming year.

According to the research, charities hold on average 18% of their total assets in cash.

In the face of these findings, Investec is suggesting charities reassess their portfolio’s asset allocation in order to ensure it is structured to mitigate as far as possible the impact of inflation and falling levels of income.

Louise Hall, head of charities at Investec Wealth & Investment, said: “These are tough times for many charities. A funding squeeze has drastically reduced their income and inflation is continuing to erode the value of their assets and eat into their investment returns.

“While our survey shows that most charities are worried about inflation, we are concerned that only 17% plan to change their investment objectives in light of this threat.

"In the face of such strong economic headwinds it’s also surprising that only a third of respondents believe they will have to dip further into their cash reserves. We worry that in some cases charities are being overoptimistic.”

Investec’s charity division manages £1.54billion on behalf of 820 different charites.

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