Investment strategy for charities

Charities can have very different investment needs to other investors, particularly in terms of the certainty, size and nature of their future income and expenditure.

While charities may have restrictions, either legally or self-imposed, on where or how they can invest, they generally have more freedom in investment terms than other institutions and so may explore a wider variety of asset classes. It is therefore important to set your charity’s investment strategy taking into account your own circumstances and avoiding a one-size-fits-all solution.

How and why do charities invest?

Charities choose to invest for a variety of reasons, but the central reason will normally be to further their aims over the longer-term. Without suitable investment, your charity may see the value of their reserves, and any income, reduce in real terms over time. This will in turn reduce the funds available for future expenditure. If the short-term volatility of your chosen investments is too high, this will also make planning difficult.

"Without suitable investment, your charity may see the value of their reserves, and any income, reduce in real terms over time. This will in turn reduce the funds available for future expenditure"

The Charity Commission identifies two ways a charity can invest: “financial investments” are made in order to generate returns over time and thereby increase the funds available for future projects; “programme-related investments” relate directly to specific projects which will not only further the charity’s aims, but may also generate returns. The Charity Commission defines an investment which could fall into both of these categories as a “mixed-motive investment”.  Barnett Waddingham’s expertise lies in providing investment and strategy advice to charities on financial investments.

What is your charity’s current situation and future needs?

Barnett Waddingham’s approach is to try to understand exactly what your charity is trying to achieve with their investments. At a preliminary stage, this will involve discussing and analysing your charity’s current and future spending plans, looking at the certainty and size of future income, and exploring any other factors which will influence how you invest (such as risk appetite). Other important information will include any restrictions on where you may invest.

For further information on investment strategies for charities, please download the PDF version below.