UK wealth manager Rathbones latest survey shows charities are shifting investments to active strategies and identifies changes in investment allocations.

A majority of charities expect to pivot more of their capital towards active investments amid volatile markets and shift their investment portfolios towards equities and alternatives over the next two years, according to interviews with senior charity executives conducted for Rathbones.

The study of 100 UK charity board directors, finance directors, investment managers and investment directors with a collective £3.7 billion ($5 billion) of stock market related investments found that 87 per cent of respondents expect their active investment allocations to increase, either slightly (49 per cent) or dramatically (38 per cent) over the next three years.

When asked why, 71 per cent of survey respondents said because active fund managers have better insight than ever before to be able to deliver strong, market-beating returns, thanks to improved technology. Other reasons charities gave for the shift to active investments were that these tend to perform better in volatile markets (55 per cent), greater innovation in the active management sector (49 per cent), active strategies becoming more transparent (48 per cent) and fees for active investments becoming more competitive (41 per cent).

Charities already have large active portfolios, the research found, with 50 per cent of charity executives surveyed reporting 25-50 per cent of their investment portfolio being active, while 26 per cent said it is between 50-75 per cent.

The study also identified changes in investment allocations for UK charities, with UK equities making up a large proportion of charities’ investment portfolios. Seventy-three per cent of respondents said they had 15-25 per cent of their holdings invested in this sector and 23 per cent reporting 10-15 per cent.

Over the past two years, 47 per cent of charity executives said their allocation to UK equities had risen by 5-10 per cent - the largest shift of any asset class; close behind were non-UK equities, with 44 per cent of charity executives reporting an increase of up to 20 per cent.

Over the next two years, 88 per cent of charities expect their allocations to UK equities to rise by between 5-20 per cent. A similar proportion (84 per cent) think they will increase allocations to non-UK equities by up to 20 per cent, with 93 per cent predicting the same increase in private equity investment.

Meanwhile 89 per cent of charity executives surveyed expect to see an increase of up to 20 per cent in hedge fund investments. Charity executives said the reasons for predicted changes in allocations were to be better at matching assets and liabilities (56 per cent), increase capital growth (56 per cent), increase income (53 per cent) and to preserve capital (37 per cent).

“It is encouraging to see charities becoming increasingly confident about the role that active investment can play in supporting their long-term goals. With better technology and data giving managers clearer insights, many feel active strategies can now deliver stronger returns while also helping them navigate uncertain markets,” Andy Pitt, head of charities at Rathbones, said. “At such a challenging time for charities, this isn’t just about numbers on a balance sheet, it’s about protecting the resources they rely on and growing them in a way that allows their work to reach further and last longer.”

Rathbones is responsible for £9.3 billion in funds under management for more than 3,000 charities. Charities have entrusted their investments with Rathbones for over 100 years, thanks to its investment managers who are accountable for every aspect of a charity’s portfolio which range in value from £10,000 to more than £100 million.