Finance: Charities optimistic for future after a year of strong returns

A bull market has turned charities into investment optimists, according to JP Morgan's 2005 survey of the industry.

The survey, which was released this week, revealed that nearly one-third of charities expected investment returns of 8 per cent or more over the next three to five years, compared with only 8 per cent of respondents in 2004.

Ninety per cent of respondents believed returns would meet future requirements and commitments.

The poll also showed that 78 per cent of charities saw their assets grow in 2005, with 56 per cent experiencing growth of more than 11 per cent.

"We have witnessed an astonishing U-turn in the mindset of charities in the past year," said Jeremy Wells, head of charities investment at JPMorgan.

"Whereas 2004 saw caution and risk-aversion, this year's survey has revealed an enhanced confidence within charity investment, arising from strong performance over the past year.

"Indeed, the optimism is such that 13 per cent of charities said they had no concerns at all about managing their assets in the next three to five years."

However, the results also suggest that charities remain concerned about the fundraising environment. Twenty per cent found the fundraising climate more difficult this year than last year, which JP Morgan says might be a result of the decline in consumer spending.

But the survey revealed that charities are hungry for bigger investment returns, even if that means greater risk. Forty-six per cent said the main reason for changing asset classes in 2005 was to increase returns. In 2004, the prime reason for swapping asset classes was to control risk.

UK equities is still the most popular asset class for charities, comprising 55 per cent of invested funds. But alternative assets are figuring more strongly - property is the destination of 12 per cent of funds, and hedge funds have grown to 7 per cent. Seventy-one per cent of charity investors in hedge funds said they were satisfied with average returns of 7.5 per cent.

Seventy per cent of charities carried out formal investment manager reviews in the past two years. But almost half - 46 per cent - decided to stick with the current incumbent.

"Charities are looking to the future with confidence, expecting solid growth in capital and income from their existing portfolios, without feeling the need to make changes," said Wells.

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