Analysis - How will charities cope with the effects of the current economic crisis?

It's not very long since the last time charities were confronted with plunging stock markets. Between 2000 and 2003, 38 per cent was wiped from the value of charities' investment capital.

"There's a sense of deja vu," says Ron Green, head of product innovation at the Charities Aid Foundation. Green says many charities have learnt important lessons from the last market slump. They have diversified their investments, spreading them across property, bonds and cash as well as equities, thus mitigating the damage caused by tumbling share values.

But there are significant factors that make the current crisis far more serious. The 2000-03 stock market collapse took place during generally benign economic conditions. This time it is being compounded by looming recession. And the traditional safe haven during market turmoil - cash - is now less secure because of the banking crisis. The Charities Aid Foundation has called on the Government to guarantee all charity bank deposits, indicating the seriousness of the situation.

John Hildebrand, head of charities at Investec, says: "The crisis in financial markets could hit charities particularly hard.

"They will have to worry not only about their investment portfolios but also about declining income elsewhere and the security of their assets."

Charles Nall, corporate services director at the Children's Society, says charities that depend on fundraising income and heavy exposure to equities could have problems. If income falls, they could be forced to sell equities at a low point in the market, he says.

"Charities will have to put contingency plans into place very quickly, cancel expansion and development and make redundancies," says Nall.

And there is no discernible light at the end of the tunnel. "Equities don't look attractive at the moment," says Green. "The prospect for company shares is pretty grey and depressing."

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