Charities are too cautious in their investments, says leading finance director

James Brooke-Turner, from the Nuffield Foundation, says that charities often spend so little money that their investment managers are the main beneficiaries

James Brooke-Turner
James Brooke-Turner

Charities are too cautious when making investment decisions, the finance director of one of the UK’s largest foundations told the Charity Finance Group investment conference yesterday.

James Brooke-Turner, from the Nuffield Foundation, said charities are likely to focus too much on preserving the value of their capital, rather than looking after their beneficiaries.

"You have to think about what’s best for the people you’re serving," he said. "You have to ask whether it’s better for them to have the money now, rather than later. Just spending it all is a very attractive option."

Brooke-Turner said that charities that wanted to exist for perpetuity could end up spending so little money each year they risked making their investment managers their main beneficiaries".

"You’ve still got to pay your management fees, whatever you do," he said. "So if you only spend 4 per cent of your endowment each year, a lot of the money you spend goes to your investment manager.

"When we fund charities, we ask a lot about their fundraising costs. But if we expressed our own costs in the same way, we might find they were very high."

Brooke-Turner also said charities were too willing to take the advice of fund managers about the risks they faced, rather than trusting their own judgement.

Charity trustees were much more expert in the needs of their beneficiaries and were much better placed to decide what issues their charities faced, he said. Fund managers were not necessarily experts in charities’ long-term needs.

He said his own organisation kept a 10 per cent reserve in government bonds, representing money it would need to spend over the next few years, and then put the rest in volatile but high-paying asset classes.

"At Nuffield, we have three investment objectives," he said. "Make as much money as possible; don’t run out of cash when you need it; and keep your nerve. "It’s been a bumpy ride, but it seems to have worked out."

He also said that it was important that charities used their whole portfolio, rather than just the money they gave away, to fund their purposes. "We’re a funder of science," he said. "Because of that, we have 25 per of our money in private equity firms that invest in people doing new scientific research. We get a double bottom line."

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