Despite the recent stock market recovery, which saw shares reach a 13-month high two weeks ago, Richard Brumby, director of Charitable Funds at Credit Suisse Asset Management, is warning the sector not to expect a repeat of the comparatively high returns of the 1980s and 1990s.
He said: "The fourth quarter of the 20th century produced the mother of all bull markets as monetarism, Reaganomics, Thatcherism and a return to capitalist principles were reasserted in developed western economies.
Do we expect an encore in the first quarter of the 21st century?
"At present, we have lower inflation, even deflation in some countries, lower interest rates and lower economic growth than in the fourth quarter of the 20th century. It is difficult to see this producing anything other than low investment returns in the medium to long term."
Instead, investment conditions could resemble the years 1900-1925, when UK equity returns averaged just 2.5 per cent.
"Charity trustees will need to look to other sources of funding than their investment endowments if they want to increase their level of grant-giving," said Brumby. He also warned trustees not to be lulled into a false sense of security by taking investment returns at face value.
The majority of returns consist of income gains, but as charities spend their income rather than reinvest it, the real capital growth on charity investment can be significantly lower, or negative.
"The need for charities to raise more capital in order for their endowments to stand still is probably greater than most trustees realise. They may be being lulled into a false sense of security by being quoted returns on their investments including income, which is being withdrawn rather than reinvested," he said.
John Hildebrand, head of charities with Investec Asset Management, was slightly more optimistic about the future of charity investments.
"I agree that the overall returns from equities are likely to be much lower than they were in the last quarter of the 20th century," he said.
"They could be as low as 2.5 per cent for the first quarter of the 21st century, although I think this is overly pessimistic. I think they could be easily double this number. But even a return of 5 per cent doesn't sound overly exciting."