Ten top investment fund managers

Do you want disciplined investment or dynamic asset allocation? There's a wide range of approaches among more than 100 investment firms in the UK that supply products and services to charities. As a sample, Helen Warrell spoke to charity experts at the 10 leading firms in the Charities Aid Foundation's Charity Trends 2006 analysis of where the biggest charities and grant-making trusts place their investments.

BLACK ROCK

Head of charities Andrew Hunter Johnston

Key point "Deep equity research"

Since Merrill Lynch Investment Managers merged with BlackRock last September, its £3.5bn of charity investments have become equivalent to less than 1 per cent of its £400bn UK business.

"We offer good investment performance in all major asset classes and balance that with advice on strategy and robust, reliable administration," says Hunter Johnston.

Post-merger, charity clients now benefit from BlackRock's global bonds expertise and Merrill Lynch's equity experience. Hunter Johnston says: "We strongly believe in deep equity research and the fact that it should be done by fund managers themselves."

The firm operates an 'open-architecture' approach, which means clients aren't obliged to use BlackRock's own funds. Its managers frequently choose Cazenove's fund of hedge funds and Rensburg Sheppards' property fund for charity customers.

BlackRock has 178 discretionary clients, whose portfolios are managed by investment experts, and 5,000 direct investors, who are not individually managed but have joined the firm's pooled products. The firm claims to have cornered the market in Catholic and armed forces charities, and has launched two funds for these groups - Charifaith and the Armed Forces Common Investment Fund.

UBS

Head of charities David Rowe

Key point "Breadth of advice"

The charities arm of UBS has been growing rapidly in recent years. Managing £2.5bn on behalf of 500 clients, the charities business is now approximately 3 per cent of the firm's £80bn of assets managed in London.

"The key issue is the breadth of advice that we provide," says Rowe, managing director of UBS Wealth Management UK and head of charities. "We have a very broad range of investment products. We will advise on bespoke benchmark products, common investment funds, property unit trusts and targeted return funds. These are either in-house, using UBS investment products, or as part of an open-architecture approach using other firms' products."

According to Rowe, breadth is important in a world of change. In line with the Charity Commission's directive that charities should become more astute about their financial affairs, UBS provides charities with advice on regulation from its visiting expert, Professor Paul Palmer of Cass Business School.

The typical UBS charity client has £5m under management, but the investments range from £1m to £300m. The firm has attracted both fundraising charities and grant-making trusts, as well as religious, healthcare and animal welfare organisations.

NEWTON

Head of charities business development Ruth Murphy

Key point "Charities don't want to feel they are on a production line"

Newton's focus on building solid client relationships appears to have paid off. With £3.8bn under management in segregated accounts and £125m in common investment funds, charities represent more than 10 per cent of the firm's £35.6bn UK business. "Charities want people who will understand what their needs are; they don't want to feel like they are at the end of a production line," says Murphy. "Some fund managers here have looked after the same clients for 20 years."

Newton's average investment is £4.5m per charity, but this ranges up to £300m among a few of Newton's 371 discretionary clients. Almost half the money in the firm's segregated portfolios is invested under a socially responsible investment policy, which usually focuses on avoidance of tobacco but increasingly consists of more complex criteria. Newton also produces its own global market analysis from a research team in London. "We don't take broker recommendations - 90 per cent of the decisions on stocks are based on our research," Murphy says.

SCHRODERS

Group head of foundations and charities Richard Robinson

Key point "Our charity portfolios tend to be more diversified"

Schroders has looked after charity investments since the 30s. Even though its 250 charity clients make up only 5 per cent of the firm's £56bn UK business, Robinson claims this is no disadvantage.

"I am not the motor of this firm's profitability," he says. "I really like that, because it allows me to do what is right for my clients and I do not feel under any financial pressure to maximise profitability. The difference between Schroders' charity portfolios and most others is that ours tend to be more diversified across asset classes and less purely equity-driven."

The firm is keen to emphasise that its £2.5bn charity sector business is focused on small and medium-sized charities as well as the larger ones, and the majority of its charity portfolios range between £1m and £10m.

GERRARD

Head of charities and philanthropy Guy Davies

Key point "A local service with clear expertise"

If HSBC is the world's local bank, then Gerrard is the local one for charities. The firm, which now comes under the vast umbrella of Barclays Wealth Management, manages £2.3bn of charity assets from a regional network of six offices run by charity specialists.

"We are able to give charities a very local service with clear charity expertise," says Davies. "We offer the not-for-profit sector finance and investments with a day-to-day local knowledge of the community in which the charity operates.

"Through our investment bank, Barclays Capital and Barclays Global Investors, we can structure market-leading products to meet the needs of the sector. We provide segregated investment management in a range of asset classes with a focus on meeting trustees' requirements for return and risk."

The firm has one common investment fund, Charitrack, which tracks the FTSE All Share index, and a non-CIF pooled bond fund known as Charibond.

Gerrard's 1,200 charity clients have investments ranging from £50,000 to £120m. Of these, 870 are discretionary and 330 direct investors or advisory clients. Because 40 per cent of the firm's charities are religious orders, Gerrard claims to understand a variety of faith-based needs.

CAZENOVE

Director of charity client services John Gordon

Key point "A bespoke policy for each client"

Cazenove is a fiercely traditional firm. The appointed manager of the Queen's investments and descended from a business of Huguenot financiers, this house is a city institution. Cazenove currently has £2.2bn of charity money under management, which represents 20 per cent of its £11bn UK business.

"The one central ethos at Cazenove is that clients come first," explains Gordon. "That may sound like an old-fashioned notion, but it's true. We don't try to stuff products down people's throats and we will argue our corner hard to achieve what the clients want."

Cazenove now has 301 discretionary charity customers, which typically have investments of between £2.5m and £7m. "We provide a strategic asset allocation service: a bespoke investment policy for each client that fits their individual investment objectives," Gordon says.

In addition, Cazenove manages five common investment funds, covering UK equities, property and hedge funds. The Absolute Return Trust for Charities, its CIF fund of hedge funds, is so far the only such product to be recognised by the Charity Commission and is commonly used by other charity managers.

HSBC

Director of charity investments Heather Lamont

Key point "Understanding the needs of each client"

HSBC describes itself as a 'solutions provider', and the charities service is said to be no different. The firm currently manages £1.5bn of charity money, which is equivalent to 7.5 per cent of its £20bn UK business.

"At the charities team, we need to understand the needs of each client and pull them all together," says Lamont. "We provide the full range of investment services and funds, and we cover the spectrum from short-term to very long-term business."

HSBC's aim is to calculate a long-term strategy for its charity investors. "Quite a few charity trustees come along with pre-conceived ideas of what they want, but we need to look at what they are trying to achieve and then match that with ways to get those results," Lamont says.

"We want to know a charity's plans for capital expenditure and upcoming projects. It's always important to keep these solutions under review in case a different approach is needed."

The firm has 365 discretionary clients and 75 direct investors in its two common investment funds, which are for UK equity and UK fixed-income. The average charity investment is £3.7m per client.

RENSBURG SHEPPARDS

Charities specialist Charles Mesquita

Key point "Effective communication with charities and trustees"

Rensburg Sheppards prides itself on providing a truly bespoke service for its segregated charity clients. "We feel that we understand the requirements of the charities both now and going forward, and we are able to structure a portfolio that meets the charities' needs," says Mesquita. "This is only achieved through effective communication with charities and trustees. We don't employ client-relationship managers because the people who make the investment decisions should talk directly to the clients."

Rensburg's 821 discretionary customers now have a total of £1.6bn under management, but the firm is perhaps better known for its Charities Property Fund, which has £377m invested on behalf of 917 clients. The two services combined make up nearly 15 per cent of Rensburg's £13bn UK business.

As the first investment firm to use external products, also known as the open-architecture approach, Rensburg now strives to buy 'best in breed' for any particular asset class without any conflict of interest.

SARASIN CHISWELL

Director and head of charities Richard Maitland

Key point "We are a bit more active"

Sarasin Chiswell is known for its strategic expertise. It manages £1.6bn of charity investments - more than a quarter of its £6bn UK business.

"We have very strong fundamental information about how charities should approach investment," says Maitland. "We have even occasionally been asked to carry out one-off strategic consultancy work because we are known to be strong in that area. We employ a system of dynamic asset allocation, which means that we move more money around than our competitors - we are a bit more active and willing to use our judgement."

Whereas the majority of charity investment managers invest in world markets on the basis of regional divisions, Sarasin prefers to allocate investments according to themes such as global convergence and international property.

The firm's aim is to move away from the view that common investment funds are second-class vehicles for small charities and towards a system of what it calls "grown-up, modern CIFs" that are appropriate for charities of any size.

Sarasin has 150 discretionary clients, whose average investments are unusually high at £9m. Among these are a number of Oxbridge colleges and City livery companies.

BREWIN DOLPHIN SECURITIES

Fund manager at the charity team Vinay Bidi

Key point "A disciplined investment philosophy - we don't try to be too clever"

BDS is a house with a staunchly independent style. It offers charities a purely segregated discretionary service and has no pooled funds. The firm's £1.5bn charities arm represents nearly 8 per cent of its £19bn UK business.

"Our unofficial motto is to take all the hassle away from the client," says Bidi. "Good fund managers are like the best football referees - when they're doing their job properly, you don't realise they're there at all. We like to find things running like clockwork. Because each individual charity has got specific aims, objectives and time span, and a changing body of trustees, we feel that a segregated service is the best way for them to feel we are doing what they want."

Bidi believes the firm has a "disciplined and rigid investment philosophy", which is at the heart of the investment model. "We don't try to be too clever: everything we do is done properly, professionally and well," he says. With between 1,000 and 1,500 charity clients, BDS appeals to smaller charities that are seeking a bespoke service.

HOW THE CHARITIES AID FOUNDATION RANKS CHARITY INVESTMENT FIRMS

The information in CAF's annual survey, the next one of which is due out in June this year, is taken from the annual accounts and trustees' reports of the top 500 charities and the top 500 grant-making trusts. Some organisations fall into both these categories, so this amounts to about 995 separate bodies. Of these, 711 listed details of their investments and chosen fund managers in the public domain in the year 2004/05, which formed the basis of the 2006 ranking. Details from the remaining 284 organisations were therefore unobtainable. Once the 711 traceable charities had been identified, financial information supplier Caritas Data provided CAF with a digest of investment information, which was then tallied against the list of managers to create a total figure of investments per house. Some fund managers have criticised CAF's method, since it does not give due credit to those houses with strong business among charities outside the top 995. It is therefore important to remember that the CAF data reflects only how well each investment manager has performed within this group of big-hitters. Liz Goodey, head of research at CAF, admits the current strategy "doesn't capture the finances of the smaller charities", but points out that the larger charities account for the "vast proportion" of the total sum of investments in the sector.

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