Background:
Our client, Citizens Advice Haringey, is a well-known charitable organisation giving information and advice to help people with legal, debt, consumer and housing problems.
When we first met with them they explained that their main concerns revolved around preserving their capital and ensuring a secure long-term financial plan while still maintaining liquidity for any future needs.
At the time, they held all of their unrestricted reserves in cash, spread across multiple current accounts. These accounts were earning near-zero interest, which left the charity’s funds exposed to inflationary erosion.
Challenges:
- Low interest earnings: The assets, held in cash, were generating negligible returns.
- Inflation risk: With inflation steadily rising, the purchasing power of the charity was being eroded over time.
- Lack of investment strategy: Despite holding significant reserves, the charity lacked a formal investment strategy to align with its long-term goals.
Approach
1. Needs assessment:
After initial discussions, it became clear that the charity had a low need for immediate liquidity. Their outlook was primarily long-term so holding a significant portion of their funds in cash was not optimal.
2. Educational process:
We took them through a detailed explanation of the investment process, including the benefits of diversifying beyond cash, how to build a portfolio suited to their goals, and how to review strategies on a regular basis.
3. Strategy review:
We conducted a full review of their financial goals and investment objectives. The charity was guided on creating an investment strategy that aligned with their long-term vision, balancing the need for capital growth with risk management.
4. Trustee engagement:
A number of investment options were proposed to the charity’s trustees. Each option was explained thoroughly, outlining both the advantages and potential drawbacks. The trustees were closely involved in decision-making, ensuring the strategy was tailored to their charity’s specific needs.
5. Platform-based investment:
The charity’s reserves were invested via a platform that granted access to institutional funds. This approach allowed them to benefit from lower institutional fees and greater diversification opportunities than they would have had through traditional retail investments.
Outcome
- Increased returns: By transitioning from cash to a diversified portfolio, they were able to significantly boost the long-term expected returns on their unrestricted reserves (from near 0% to c.9% expected annual return).
- Inflation protection: The investment strategy provided a hedge against inflation, helping preserve their purchasing power.
- Regular monitoring: We regularly monitor their portfolio to keep it aligned with their charity objectives. Regular reviews of both the investment strategy and performance keep the trustees informed and in control of the process.
Conclusion
This case study shows the importance of moving beyond a cash-only strategy when liquidity needs are low and long-term goals are in place. We took the Trustees on an educational and collaborative journey with us.
And, in doing so, successfully transitioned them to a more strategic investment approach, protecting their reserves from inflation and achieving higher expected returns while maintaining their flexibility to adjust their strategy as needed.
Cartwright Charitable Trusts is an experienced investment consultancy that deals only with professional clients. Please contact us if you would like to discuss how the Cartwright institutional quality investment offering can benefit your charity.
