Investment Decision-Making Tool for Charities

A new tool to help smaller charities and faith-based organisations decide on their asset allocation when investing has been produced by an ethical funds manager.

Ethical funds management company, UCA Funds Management has released the free tool for charities as they exercise responsible stewardship of their financial resources.

The technical paper “What is the best asset allocation for us?” is designed to walk Not for Profit finance committees through the process of analysing investment asset categories, determining an investment time frame and assessing their organisation’s appetite for risk.

It then presents a matrix that combines these factors into a suggested asset allocation mix. UCA Funds Management is described an ethical funds manager for charities, faith-based organisations and personal investors, with $900m in assets currently under management .

The paper’s author UCA Funds Management CEO, Michael Walsh said that while many Not for Profits have a committee to deal with investment stewardship, they often ask for guidance in mixing defensive and growth asset investments and budgeting for investment income.

“This tool is designed to provide structure for that discussion so that investment assets can make their best contribution to mission,” Walsh said.

“The paper also discusses concepts such as dollar-cost-averaging and how to protect reserves when the organisation is vulnerable to deficit funding from changes in government policy or an increase in demand for services during times of economic recession.”

Walsh said that while there has been a strong recovery in the stockmarket, charities that rely on investment income to fund their mission are having a tough time.

“With interest rates at historical lows and yields on equities and property shrinking, it is becoming clearer that being a conservative long term investor has a price. In this environment tax free capital gains and returns of dividend imputation credits are important benefits for charity investing”.

“With interest rates low the situation arises where charities can get better income from shares and property than from cash.

In the UK, the Charity Commission there has begun consultations with Not for Profit organisations on proposed changes to rules around Common Deposit Funds – an investment system not currently operating in Australian charities.

The Charity Commission, the independent regulator of charities in England and Wales, has opened an eight week consultation on proposals to change the schemes to establish Common Deposit Funds (CDF).

CDFs are a type of investment fund. They are deposit-taking schemes that only charities can invest in and they are treated as charitable in law. They accept deposits from charities and pool the money to form a large sum that will then be deposited on the money market.

As a pooled and larger sum, the deposit may secure a higher rate of interest for the depositing charities than each charity would otherwise obtain if undertaken separately. The UK Charity Commission has responsibility for regulating CDFs as charities.

The Commission says it is is revising the schemes that it makes to establish CDFs because of changes to the way that managers of some investment funds, including CDFs, are regulated.

"We know that CDFs are a method of investment that is used by charities and that they have been particularly important to smaller charities that have relatively smaller sums of cash to deposit,” Jane Hobson, Head of Policy at the Charity Commission said.