Charities often strive to exist for the long term because the problems that they are set up to address persist for generations. How wonderful it would be to cure cancer or remove poverty - but both are long-term rather than immediate goals.
Trustees act as stewards of these charities - of both the mission and the assets in the organisation. They, along with the executive team and the staff, are charged with using these assets efficiently and effectively in their time on the board; but there is a mismatch between the long time-horizon of the charity and that of its stewards, because trustee terms generally last only a few years.
In 2013, I co-authored the report For Good and Not For Keeps, which examined how much foundations, endowments and charities with long-term missions were spending from their investments each year. Our survey showed that charities that thought about their investment strategies over decades, rather than years or quarters, felt able to distribute more to their beneficiaries now.
The two markets that charities looking for long-term returns on investment most commonly turn to are equities and property. Property markets can claim to be populated largely by long-term investors, in part because of the relatively high transactional costs. Equity market investors have become increasingly short-term: a report on the US equity market showed that the average time a share is held fell from more than eight years in 1960 to less than six months in 2010.
This has harmful knock-on effects for charity investors: shorter holding periods lead to increased volatility of investment values, which leads to heightened anxiety and, in turn, more frequent board reviews.
Fund managers have been guilty of perpetuating these rather unhelpful characteristics, with quarterly valuations, and even presentations, explaining each company share price oscillation in great depth. Although interesting, these are not strategic decisions for a charity (unlike the selection of an investment manager or an appropriate investment policy and strategy) and are not an effective use of a board's time. There is a danger here that long-term investments become trustee time liabilities rather than assets. Charities might have the luxury of time, but trustees' lives are often busy.
How do you turn these time traps into positives? Here are three suggestions to help boards focus on where they can make the most efficient use of their time: dedicate board time to investment policy and strategy rather than frequent reviewing of outsourced investment manager reports; expect volatility and appraise performance over three or five-year time horizons; and be a long-term investor, which involves seeing the opportunities that other investors' short-termism provides and encouraging more responsible long-term business models.
Time is an asset for charities and, as such, should be valued and carefully managed so that we can benefit from the great opportunities it presents to charity investors. Time allows charities to take the long view where governments or corporates are unable to, beholden as they are to a multi-year voting cycle or quarterly shareholder reporting.
Kate Rogers is client director at Cazenove Charities