Assets fell by £4.7bn over the year to £70.1bn, as the sector was hit by the bear market. Net funds were £61bn at the end of the fiscal year, down £5.2bn. The plummeting stock market saw charities' investments drop by 10.7 per cent, compared to 2000/1, to £41.1bn.
Many of the losses will have been unrealised - affecting only the capital value of investments. But the authors believe the fall in investment values also led to a decline in investment income, which will have affected charities' work.
Karl Wilding, NCVO's head of research, said that the total return on investment strategies - based on taking some of the capital value as well as income from charity investments - "would have yielded less than anticipated".
"These figures are a snapshot of the sector suffering from a bear market," he said. "Balance sheets will and have recovered. But we need to be careful about being complacent. The impact on activities is real and charitable expenditure is likely to have been impacted on. For example, we think that grant making was cut by £255m."
But Paul Palmer, professor of voluntary sector management at the City University Centre for Charity Effectiveness, who led the research, said the sector may have got off lightly compared with other parts of the economy.
"The FTSE fell by about 50 per cent during this period, so I'm surprised the fall wasn't even deeper," he said. "Charities have probably done better than personal investors."
Nonetheless, the almanac says charities have been forced to fund spending from reserves. Palmer said: "We know from Charity Commission reports (for 2001 accounts) that charities are under-reserved rather than over-reserved, so the situation will have got worse."
The sector's liabilities have also increased. They rose from £8.03bn in 2000/1 to £8.57bn in 2001/2.
Researchers believe the rise may be due to greater use of loans. "Although data for the smallest organisations was not available, we believe the sector had loans and overdrafts of almost £1.8bn in 2001/2," the almanac says. "Increasing availability and falling interest rates were the likely drivers."
Wilding added that there were some longer-term trends that the research hadn't fully explained. "For example, what has been the impact on final-salary schemes, both in terms of having to cut back the schemes themselves and the need to fund liabilities brought on by the bear market?" he asked.
See News in Focus, p12.