-since 2018

Charities are missing out on digital investment platforms

Bridgit Richards, CAF, argues that many charities are missing out on digital innovations when it comes to their investments – it’s time for that to change.

Last year, the Charity Financials Spotlight report revealed that the top 5,000 UK charities (in terms of new assets, income or expenditure) are holding £16.7bn in deposits, up by £500m the year before.

There will be sound reasons why this £16.7bn isn’t being actively managed by investment professionals on behalf of the charities. This could be due to governance parameters or because these charities are holding other types of assets, such as property, or because the money is being used for everyday costs. The top 5,000 UK charities are also competent financial operators. Our research at the Charities Aid Foundation (CAF) shows that 62.5% of charities with an income above £15m are confident that they are maximising income through invesments.

Historically, the very largest charities have had greater access to investment facilities and expertise. However, what about smaller and medium-sized charities? When we asked charities with an annual income between £1m and £5m “do you agree that your organisation knows how to maximise income through investments?”, less than a third (32.8%) said yes.

Smaller and medium-sized charities actually make up the lion’s share of all registered UK charities; according to the Charity Commission itself, 98.7% of charities have an annual income of £5mn or less.

Charities of all stripes – from micro charities with no full time paid staff to international organisations employing hundreds of people – need access to reliable digital investment platforms, where they can actively make smart financial decisions.


A long-term investment

The benefits of using digital investment platforms are clear; after all, base interest rates have been at historic lows for the past decade. By proactively investing some of their deposits, charities of all sizes can demonstrate control over how they manage their own finances long term, whilst also taking into account their own risk appetites. There is a degree of self-reliance and a great opportunity to be more transparent at the same time.

Of course, whilst the value of investments can go down as well as up, there are opportunities for much greater returns over time. Say, for example, that in April 2015 a charity had £100,000 they wished to invest. They decided to spread it equally across 10 popular funds, opting for the 10 listed here from research by AJ Bell. Four years later (and assuming the charity made no withdrawals), the current value of their investment would be £147,386 – an increase of over 47%.

Charities that want to take a more active role in investing their deposits for the long term have faced a number of constraints. There is an historic fear of financial risk; no charity whether big or small wants to place money received from fundraising campaigns, private donors and corporate partners and see it lose value.

At a time when the charity sector is under scrutiny – just look back at the scandals that engulfed international aid organisations last year – charity leaders are understandably erring on the side of caution.


Challenging the default

Some charities – especially smaller and medium-sized ones – are simply not aware of the benefits of digital investing, or think that they somehow don’t qualify. This isn’t true and it’s down to those of us in the know to spread the word.

Responsible and proactive investment choices could allow charities to finance more staff resource where it’s needed; sometimes this is for cutting-edge projects that benefit their patrons, but often it’s simply to cover the everyday costs that keep a charity operational.

Charities no longer have to sit on their deposits as a default option. They can actively and digitally invest in their organisation’s future, no matter their cause area or annual income. And it’s about time that more charities were made aware of the possibilities available to them.

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