Almost Half Of Charities Sold Assets Post COVID

Shirin Aguiar Reporter London 14 December 2021

Almost Half Of Charities Sold Assets Post COVID

Charity begins at home but one UK wealth manager looking after the interests of charities has said that a large chunk of them have been forced to sell investments to remain viable because of falling donations and interruption to fundraising.

A UK wealth management group has warned about how the pandemic has prompted charity bosses to sell investments to remain afloat and offset rising demand for their services.

James Hambro & Partners has found that four out of ten (42 per cent) charities have been forced to sell assets to meet growing demand for their services during the pandemic. Some 64 per cent of charities with at least £1.0 million ($1.32 million) of investable assets have had to sell or cash in some of their investments during the pandemic, having suffered from a fall in income, partly due to fewer fundraising events, while four out of ten (42 per cent) said they have been forced to do this to meet growing demand for their services during the crisis, according to the firm's figures.

“For those charities with investment assets, not only are they important to their overall financial strength, but they also provide a very important source of income to help them meet their objectives and provide the services they offer,” Nicola Barber, partner and head of charities at the firm, said.

“Although stock markets have risen, portfolios that were targeting income suffered as dividends were cut or cancelled. Our analysis of FTSE 100 companies reveals that last year, 32 dividends were cancelled, nine were cut and 13 were suspended.”

Last year the arrival of COVID-19 and associated economic and social upheaval prompted charities to bring forward annual distributions. This publication has been told that high net worth individuals increased their donations last year. A question remained, however, as to how long such increases could endure before reaching a limit. So far markets have been supportive. Last year equity markets rose after initially crashing on the pandemic's outbreak. So far in 2021 developed markets' equities have risen since January. The MSCI World Index of developed countries' equities shows total returns in dollars (capital plus reinvested dividends) of 16.31 per cent in the year to date.

Even so, James Hambros & Partners said the continued fall in bond yields has also added to the challenge for income investors. It added that charities that have been able to take a total return approach, targeting returns through capital growth as well as income, fared better.

COVID-19 has created the perfect storm for charities that have come to depend on giving when the government and local authorities have withdrawn funding over the years, with the sector hit on several fronts, as this publication has previously noted.

The research involved interviews of 100 senior executives of UK-based charities with a combined £3 billion in investable assets and was carried out between June and July.  Charities with investable assets rely heavily on them to generate an income, but 18 per cent saw their their generated income fall dramatically since the pandemic started. A further 52 per cent said income had fallen slightly. 

According to analysis of the latest industry data by James Hambro & Partners, charities generate around £53.5 billion a year in income, but their expenditure is around 96 per cent of this. Donors and fundraisers have cut back on regular monthly payments and activity as their own incomes were hit during the health crisis, and they are unsure when they will return to normal, the firm said.
Two out of five (36 per cent) of regular donors had cut the amount they give each month by an average of £11, while 44 per cent of fundraisers had reduced or stopped fundraising altogether, leaving charities with reduced donations.

It could be a long road to recovery, with just 23 per cent of those who cut monthly donations planning to restore their payments by September 2021, the research found. Around 19 per cent of donors said they would not start giving at the same level at least until December 2021, while three per cent said they would not give again.

It is a similar story for fundraisers, with around 25 per cent having said they only planned to get back to normal by September 2021, while 22 per cent would wait until at least December and 4 per cent were giving up on fundraising entirely.

Regular donors who have cut back said that their own financial situation had forced them to reduce payments, with around 41 per cent having suffered pay cuts, lost their jobs, or having been furloughed, the research found.

Some bright spots
Fifteen per cent of the charities interviewed said that since the pandemic began the value of their investment assets had increased dramatically, and a further 59 per cent have seen their value rise slightly as stock markets around the world have risen, with the remaining 20 per cent reporting no change.

Around 9 per cent of donors said they increased donations or started giving for the first time during the pandemic, with average increased regular payments of £15 a month, the research found, while some people left more to charities in wills.

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