OPINION: HOT ISSUE - Has the press exaggerated the impact of falling stocks?

There have been a number of stories in the media claiming that investments are dropping in value and charities are losing lots of money and having to cut back services as a result. Charities appear to be suffering from the economic climate as much as anyone else, but are these stories exaggerating the situation?

John Rogerson, head of investment services, Charities Aid Foundation


No one wants to underplay the impact of the current state of the equities market: for some particular charities the impact may be serious. But headlines such as "Charity Assets Plummet Shock

over-simplify the situation for two reasons.

Firstly, most charities looking for capital growth are invested for the long term. As prudent investors, they would be ill advised to "cash in

near market bottom. To that extent, current share price falls simply generate a paper loss. Past evidence suggests that charities which hold their nerve will show long-term out-performance over both bonds and cash. It is therefore only charities which are forced to realise their assets at present that will be badly hit.

Secondly, charities reliant on income to fund their activities should be invested largely in bonds rather than equities. The bond markets will impact these charities more than equities and bonds have done relatively well.

Even where a charity holds some equities, dividend levels have held up more than capital values. So generally, the impact on income should be muted.

Martin Smith, chief executive, Close Wealth Management


Almost all equity investors in the UK have experienced negative returns over the past 18 months and charities have not been immune to the impact of these falls. With investments under management totalling in excess of £30 billion, the falls in stock market values and the effect on charities cannot be underestimated.

Recent press coverage has highlighted that the sector is facing other funding crises such as sharp falls in donations and problems associated with local and central government funding. These financial pressures have combined with the collapse in stock values and are forcing different charities of all sizes to sell off assets to cover costs and commitments.

Shirley Scott, director, Charity Finance Directors' Group


The impact will not be seen for a year, but there will be less income available for charities in the coming year, and fewer long-term commitments.

Large charities investing prudently on a comparatively low risk policy, commonly had 60 per cent or 80 per cent equities in their portfolio. This means they have suffered a loss of net worth due to the falling value of the shares and a loss in income due to the fall in dividends paid.

A charity with, for example, £10 million invested in equities in December 1999, may now find those equities worth less than £7 million.

The bottom line is less money to meet their charitable objectives. Grant-making charities will have less money to distribute this year while other charities will find grants harder to obtain and their voluntary income having to stretch even further.

The falling market also has an impact on fundraised income. Individual donors who see their private income and shareholdings shrink may cancel standing orders and be less inclined to donate shares or other assets.

At the same time, companies that have been generous sponsors may find their marketing or donation budgets cut and relationships with charities put on hold until times get better.

Jackie Bliss, director of finance and administration, Coram Family


Coram Family relies heavily on its endowment because it receives very little money from fundraising. It will draw £1 million this year from the endowment to cover the gap between income and spend, because core costs are not covered by fee income or grants and much of its work does not attract public funding.

The market value of Coram's investments has fallen by 40 per cent over the past two years. The annual loss of income, however, is only £150,000 compared with the capital loss, which runs into millions.

Until the latest downturn in the markets of June 2002, these declines had not affected Coram's work, which has been growing at 30 per cent per year. However, it has had to defer major building expansion plans until conditions improve.

Additionally, significant fixed term funding is due to expire within the next two years. Coram is pursuing alternative money, but potential grant funders are earning less income on their own investments. If the search for new funding fails, there is the real possibility of having to close services.

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