Interview: John Harrison

The professor at Cass Business School says charities tend to be conservative investors and thus reap lower returns

John Harrison says the sector might be on the verge of a significant change in the way it invests
John Harrison says the sector might be on the verge of a significant change in the way it invests

John Harrison has worked in investment for more than 30 years and has seen plenty of media storms break and blow over during that time.

He believes that last December's BBC Panorama investigation, which exposed how some charities have been investing in controversial areas such as arms and tobacco through their managed funds, is just the latest storm that will soon pass.

"Many years ago we had an issue about the high level of reserves some charities, particularly fundraising ones, held," says Harrison, a former charities investment fund manager and now leader of Cass Business School's charity investment course. "The response from charities has been to look at the issue and ask whether they should be doing things differently. Then they either conclude that their approach was appropriate, or they make a change to their investment policies."

He says that although some individual charities might start setting firmer definitions of what investments are unacceptable, the recent negative media attention won't lead to sector-wide change. "One problem is where you draw the line with your investments," he says. "It is relatively easy to eliminate companies that are involved in arms or tobacco, but it's more difficult to define some businesses involved in alcohol."

But he does believe the sector might be on the verge of a significant change in the way it invests: instead of seeking to make a purely financial return, charities will increasingly be trying to make a social impact with their investments. He cites the funders the Tudor Trust and the Esmee Fairbairn Foundation as two examples of charities that have already started to use their money in this way. "I do think that there's a slow-moving but steady tide towards this sort of investment," he says.

The course Harrison runs at Cass is aimed at larger charities with more than £10m of investable assets and helps key individuals, such as finance directors or the chair of trustees, to consider their approach to investment. One area in which charities could improve, he says, is the setting of their investment objectives. According to Harrison, too many charities have loosely defined objectives that say things such as "we want to maximise returns for the least possible risk". He believes it is important to set tighter definitions.

"It's about being more precise about what level of return you're likely to want, what level of volatility is acceptable and what your loss-tolerance is," he says.

Some charities should also be braver with their investments, he says. "This is a gross generalisation, but there's a tendency among charities to be conservative - they like to have much less volatility than other investors," he says. "As a result, investment returns tend to be on the low side."

Many charities with investable assets have set up sub-committees to oversee the management of their funds, but does Harrison believe it is necessary to form a dedicated committee of this kind in order to get the best decision-making?

"If you're a larger charity, it's probable that there are complex issues that ought to be discussed by a subset of trustees - but it's not essential," he says. "Some large organisations have investment structures that are quite simple. In some instances, you might be creating a layer of delay and a blurring of accountability by having a committee."

After the financial crisis of 2008 and attempts by governments to pump money into the financial system, it has been hard to make money from investments. Harrison says it is unclear now what will happen when we go back to a normal environment where central banks stop pumping in money. "If you're running a big charity now, you will probably see poor returns on things that have been safe investments, such as bonds," he says. "It's difficult to know whether you should put your money into property, equities or alternative investments."

He adds that many assets are relatively expensive as a result of recent monetary policies, and there are few attractive investment opportunities. "It's almost like an ugly contest - which is the least expensive of these expensive assets to buy," he says.


2013: Visiting professor in the practice of charity investment, Cass Business School, and adviser, Allenbridge Epic Investment Advisers

2011: Partner and client investment consultant, Aon Hewitt

2008: Head of UK institutional advisory solutions, UBS Global Asset Management

1994: Various roles at UBS Global Asset Management

1993: Head of charity business development, Fleming Investment Management

1991: Head of charities, Lazard Investors

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