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Financial times, October 9 2008,
By Brooke Masters

Charities wise up to create a business opportunity

Small and particularly mid-sized charities are now an important potential source of new business for UK private client and institutional money managers.

Rathbone Brothers specifically highlighted the growth of its charities team in its latest management statement, and other investment managers such as Rensburg Shepherd say they are being asked to compete to manage an increasing number of charitable accounts.

The sources of the movement are coming from two directions. First, charitable boards are becoming increasing sophisticated and are more likely to change investment managers if results are disappointing.

"Charities have woken up to the fact they need to be more aware of what their investment managers are doing for them and what they expect from their portfolios," said David Rowe, managing director, UBS wealth management.

UBS, which tends to focus on larger endowments, managed £2.4bn for 450 charities at the end of 2007, up from £400m in 2002.

Recent market gyrations have also forced trustees to pay more attention to investment performance, in terms of both income and asset preservation.

"There is a greater inclination to move around now, which gives the sector a feeling of buoyancy, when actually it is trustees getting concerned," said Vinay Bedi, a fund manager at Brewin Dolphin, which manages £1.2bn for 1,850 charities, up from £800m five years ago.

The Royal College of Radiologists moved its portfolio to Rathbone's after a routine review, said Andrew Hall, chief executive. "We did what any charity should do and we've been pretty happy," he said.

At the same time, some money managers are eager to take on accounts they would once have given low priority. "The asset management world has woken up to the fact that there is a lot of money in the charities world that hasn't been exploited," said Mark Morford, head of client relationships at the Charities Aid Foundation.

According to an April report for the Institute for Philanthropy, UK charities held £56bn in assets but annualised rates of return over the past five years ranged from 3.1 per cent to 22.1 per cent, with the median at 8.7 per cent.

The report accelerated interest on the part of charity trustees on improving financial performance. In the wake of the 2000 Trustees Act, the UK Charities Commission recommended that charity boards reassess their investment relationships every three years.

"Now there is more pressure to be behaving properly and to be seen to be behaving properly," said Andy Pomfret, Rathbone's chief executive. Rathbone started its charities team about five years ago and now manages £1.2bn for 600 charities.

Charities with less than £1m tend to be managed by private client departments and very large charities, say above £50m, have teams of advisers or in-house managers. But those in the middle are generally serviced by specialist charity teams.

It is this middle market where firms are recruiting charity specialists away from some of the biggest investment teams, notably UBS and HSBC. The clients left behind then tend to put their business out for bid, creating opportunities for other managers.

"Longevity of service and low staff turnover are coming into their own," said Louise Hall, head of charit-ies at Rensburg, which manages £1.5bn for 833 charities.

In good times, charities are often seen as high maintenance clients. They require three-year reviews; they often push for lower fees and require extra work to cope with legal limits and ethical constraints on investing.

But in tough times they provide work for staff who might otherwise have to be let go, and the trustees may be more willing to take a long view on investments. Ms Hall notes that one of her clients observed: "We've been around for 500 years. We are not wound up about one year's performance."

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