CHARITY CASH CONUNDRUM

Ian Leeson – Chartered Financial Planner – 12th August 2020

The COVID-19 pandemic and the reduction of fundraising events this year has left many charities with a dramatic income loss. The London Marathon alone raised £66.4m for good causes in 2019 and without contributions like this, many are feeling the pinch, especially with the increased demand the pandemic has put upon them.  

With this in mind, it is more important than ever for charities to be able to get the best returns on their cash and investments.

 

The Bank of England’s historically low base rate (0.1%), which doesn’t look to rise anytime soon, makes it incredibly difficult to obtain any meaningful return on bank and building society deposits.  However, before trawling through the many comparison websites on the internet, it is important for charities to take a step back and consider any restrictions set out in their Investment Policy – as recorded in the Charities Investment Policy Statement (IPS) – if they have one.  With the current dire savings environment, now may be a good time to review the existing IPS and make sure aims and objectives of the charity are met. 

In reviewing or creating an IPS, trustees should consider the following headings: –

Investment Objectives

  • Does the charity wish to invest funds outside of cash deposits and if so what level of return is required?
  • Is the aim to maintain the capital with growth and income to be used to fund charitable activities, or can capital also be used for activities as will be replenished from donations and endowments?

Risks

  • What level of risk is the Charity willing to take with their cash and investments and how is this measured?
  • By how much would the charity be willing to see their investments fall in a short period of time (if at all)?
    What assets is the charity willing to invest in?
  • Is there a minimum credit rating for the bank or other institution the Charity is willing to hold its investments with?
  • Is there a maximum exposure (such as £85,000 for Financial Services Compensation Scheme Protection) or percentage of total exposure that should sit with one bank or institution?

Liquidity Requirements

  • What level of risk is the Charity willing to take with their cash and investments and how is this measured?
  • By how much would the charity be willing to see their investments fall in a short period of time (if at all)?
    What assets is the charity willing to invest in?
  • Is there a minimum credit rating for the bank or other institution the Charity is willing to hold its investments with?
  • Is there a maximum exposure (such as £85,000 for Financial Services Compensation Scheme Protection) or percentage of total exposure that should sit with one bank or institution?
  • How much cash is required as instant access or available in a short period of time (within 3 months or less)

Time Horizons 

  • Is the Charity expected to have a short life span or is it likely to exist in perpetuity?
  • The time horizon will have a direct effect on assessing which investments are suitable.

Ethical Investment Policy

  • Does the Charity want to limit investments to institutions that have a positive outcome on the world and the environment, or only exclude those companies that have a negative impact? How will this be measured

Management, Reporting and Monitoring

  • How and when will the performance and adherence to the IPS be measured?
  • Will the management be undertaken by a third party or in house?
  • Will all trustees be involved or just a subcommittee?

Approval and Review

  • Who needs to approve the IPS and how often will it be reviewed?

 

 

Investing cash across multiple accounts can cause an administrative headache, with different banks needing different forms and evidence of ID for Trustees etc.  However, there are several cash management firms available that can take the pain and leg work out of investing Charity cash.

These cash management firms simplify the method by having one application process, while still being able to offer you a range of different banking institutions with different accounts and notice periods.  The individual accounts are usually held in the charity name, so benefit from the FSCS protection for each institution.

There are several cash management firms currently operating in the market. We have good working relationships with all of them. 

Please get in touch if you would like further information or assistance in creating or reviewing an IPS or would like advice regarding cash and investment options.

This blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions and should be considered as guidance and not advice.  It is important for all individuals examining their pensions to seek expert financial advice from a regulated financial adviser.  Solicitors should be cautious when examining pensions with their clients as it is easy to stray into the area of regulated financial advice.  None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. 

Want to keep up to date with financial planning matters which affect solicitors? 

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