These days, all eyes are on the financial markets. And just as the rest of the world is moving towards greater regulation of those markets, so too are charities leaving behind the laissez-faire approach of old.
According to Les Jones, charities consultant with accountancy firm Hays Macintyre, charities are becoming more interventionist in the management of their investment portfolios in response to market turmoil. "Because of the volatility of the markets, people in charities are becoming much more conscious of the need to be more aware of what's going on and to influence what's going on, rather than leaving it all to the investment manager," he says. "People now are not going to sit around just watching their portfolios."
Mark Morford, head of client relationships at the Charities Aid Foundation, agrees. "Charities are becoming much more aware of the relative performance of different investment managers, and they are certainly more keen now to look around, compared with the more traditional way a few years ago of having a fund manager and sticking with it all the time," he says.
Making decisions about asset allocation is one way in which charities are asserting themselves. They are keener to influence the spread and weight of asset classes that they invest in and are, at present, moving substantial sums into cash, according to recent surveys by the large charities special interest group, part of the Charity Finance Directors' Group. According to Morford, charities are also becoming more insistent on benchmarks that are specific to their needs, instead of the ones dictated by the funds they invest in.
Charities can take a more proactive role by tapping into different sources of independent advice. Those that can afford to can buy the services of independent advisers, but others take advantage of that traditional source of free independent advice, the trustee board.
Jones, for example, was formerly finance director of WWF-UK. During his time there, he invited an investment manager from an investment house that did not manage WWF's investments to sit on the charity's investment committee and act as an independent arbiter. "You can develop an expertise independent of your investment managers that enables you to analyse and debate the issues," he explains.
Morford says that being able to call on advisers who are independent and knowledgeable about the charity markets is essential. "They are able to challenge the fund manager to ensure that the portfolio accurately meets the needs and, in particular, the risk profile that the charity wants to adopt," he says.
But certain charities are going further than asking searching questions of their fund managers. They are developing their own stance on investment styles and economic trends and then seeking a variety of managers to meet those demands.
In 2005, the Children's Society decided that a traditional balanced portfolio was no longer adequate for its needs. It decided to develop a set of new, clearly thought-out investment goals. Three members of its finance committee were asked to make contacts in the City of London by attending lunches and investment conferences.
"Given that we couldn't really find good external investment advisers who were able to think creatively and come up with a very distinct view of the world for us, we created one ourselves," says Charles Nall, the charity's head of corporate services - although he adds that "it took nine months and a lot of effort, and we spoke to a lot of people".
The Children's Society developed a view of the likely economic outlook over the coming three or four years and the kinds of assets it needed to protect against different risks. From having only one fund manager, the charity switched to having five core funds with four fund managers. "We are now absolutely clear what each part of the portfolio is doing in terms of our investment objectives and our world view of the economy," says Nall.
Another charity, the RSPB, has dispensed with investment managers altogether. It now employs investment consultancy Cambridge Associates. Instead of making investments for the charity, it advises the RSPB on how to invest its pension fund and its own charity funds; the charity then acts on the advice if it wishes to. It previously employed Merrill Lynch as its investment manager, but concluded that relying on one manager was too restrictive.
"We changed because we wanted such a wide range of investments and freedom to use whatever we regarded as best in class," says Alan Sharpe, director of finance and IT. "We decided that we needed somebody to help us do that."
Sharpe says that the charity was initially surprised by the amount of time taken up with implementing decisions - because there is no investment manager, the charity itself has to buy or sell assets. But it is now satisfied with the change because of the objective advice it receives.
According to Les Jones, if one good thing has resulted from recent market volatility, it is that charities have become more interventionist in their attitude to their investments. "Hopefully, that will change things forever," he says. "I'm not suggesting that charities had been complacent, but in a rising market your investment doesn't tend to be top of your list of things to do."