FINANCE NEWS: Sales of equities were 'mistake'

Many charities made a "horrendous mistake" by selling equity investments at the lowest point of the bear market, delegates at NCVO's financial management conference will be told this week.

Speaking to Third Sector before his keynote address this Friday, Professor Paul Palmer, of City University's Centre for Charity Effectiveness, said the three-year decline in stock values was merely a paper loss and charities should have ridden out the storm. "Quite a lot of charities made major, horrendous mistakes," he said.

"They sold equities at the bottom of the market and moved into gilts, which are very expensive. There was a double-point gain in equities from April to June this year. If a charity had moved out of equities, it would have missed out on that."

Palmer said that in the late 1990s charities were lulled into false expectations of likely returns from equity investments, prompting them to abandon shares when the returns subsequently fell.

"Charities should expect a 5-6 per cent return on equities over the long term" he said. "It is a long-term game."

Palmer, who left South Bank University in September to join the charity unit at City University, will also use his speech to the conference to attack the role of auditors in the voluntary sector, accusing them of failing to implement the Statement of Recommended Practice, or SORP.

"Many charity accounts are mystifying, with a lack of transparency and no evidence of an audit trail," he said. "Designated funds are used to hide the true level of reserves. The Charity Commission needs to name and shame auditors, not charities." He added that charity accounts would be forced to improve by the time the GuideStar website, designed to make them publicly available and comparable, was launched.

In a wide-ranging speech, Palmer will also urge charities to be more adventurous about how they bank their cash. "They should make their cash work harder," he told Third Sector. "Too many charities use conventional cash deposits."

Palmer will suggest that overseas aid charities consider using dual-currency deposits, which offer around double the interest of domestic bank accounts.

The deposits, which are used mainly by rich individuals with bank accounts across the world, pay interest in the currency that has risen the most, such as the dollar. Aid charities with accounts in several countries could take advantage of them. But they would need to take out accounts with triple A- rated financial institutions, not domestic banks.

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