CCS

Charity investment returns down by 50%, survey reveals

Written by Lauren Weymouth
09/10/18

Charity investment returns have halved in the past year, while withdrawal rates have risen to ‘unsustainable’ highs, a new investment survey has revealed.

Newton Investment Management’s fifth annual Charity Investment Survey, which surveyed 97 charities with combined investment assets of £11.7bn, sought the views of the charity sector on their expectations for asset class returns, ethical considerations within investments, board composition and their views on how political events will impact portfolios.

According to the survey, charities reported average total returns of 4.2 per cent over the 12 months to 31 March 2018, compared to 10.9 per cent over the prior 12-month period.

Looking ahead, 50 per cent of charities (compared to 38 per cent in 2017) claim to expect returns of 6 per cent or less over the longer term.

Meanwhile, more charities appear to be making withdrawals at a higher rate than they regard as sustainable. This year, 23 per cent of charities took a withdrawal of 5 per cent of more to spend on charitable activities, compared to 13 per cent of charities in 2017.

Newton IM said this has pushed the average withdrawal rate to 4 per cent, up from 3 per cent in 2017 and above the sustainable withdrawal rate, which charities believe is 3.4 per cent.

The survey revealed the anticipated impacts of Brexit on charity portfolios are increasingly negative. Results show 83 per cent and 82 per cent think it will have a negative impact on capital and income respectively – just 26 per cent of charities believe that Brexit will not affect their portfolios.

This year, results found 71 per cent of charities see environmental, social and governance factors as increasingly important, up from 62 per cent in 2017.

When asked about the effectiveness of engagement with companies on ESG issues, the majority of charities said ESG engagement on company behaviour had a positive impact (92 per cent) and would help companies improve their ESG credentials. However, the majority of charities think the impact on investment performance is likely to be negative.

Commenting, Newton IM senior client director of charities and institutions, Jeremy Wells said: “Charities have long been at the forefront of socially responsible and ethical investing thinking and practice. Over the last five years we have noted a steady rise in charities’ desire to see their ethical criteria applied to investments held in pooled funds as well as those held directly – from 53% in 2014 to 70% in the latest survey.

“The charities surveyed clearly showed that it is important to take ESG factors into account when investing, and to engage to change company behaviours.

“When asked what they felt was the best approach to dealing with companies that score ‘badly’ on ESG criteria, by far the most prevalent response was to engage with or pressure a company to change its behaviour (73 per cent), a response that was almost three times more popular than to exclude the company from an investment portfolio (27 per cent).”

Findings from the survey also show diversity remains a concern among the sector. Results found while women account for 37 per cent of board members, diversity of ethnicity and age is less well represented. Just 4 per cent of trustee board members are black and minority ethic, while 7 per cent are under the age of 40.



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