Charity Investment

Charity Forum 2013 - …happily ever after

16/01/2014

Nick Bence-Trower

Nick Bence-Trower

Portfolio Director

Schroders

The 2013 Schroder Charities Forum was held in the British Library Conference Centre. Some 200 charities were represented and for the first time we were delighted to welcome some clients of our new colleagues at Cazenove Capital Management.

The Forum began with a welcome from the Chief Executive of Schroders plc, Michael Dobson. In his opening remarks, he stressed our commitment to the charity sector and with combined charity assets under the management of some £7 billion, it was vital that all our clients continued to receive the first class service they deserved.

The Way We Live Now

As in previous years the titles of each of the presentations were themed to our venue. We had Trollope to thank for the first presentation from our Chief Economist, Keith Wade. Entitled ‘The Way We Live Now’, based on the story of the financial crisis of the 1870s, Keith suggested that lessons had been learnt, and now, just six years on from the collapse of Lehman Brothers, global growth was slowly returning. He compared the measures taken by leading central banks and highlighted how economies of the developed countries were now generally more robust. Keith considered, therefore whether it was those developed countries that were underpinning the recovery, whereas the emerging economies faced the challenges of rising inflation and increased competition.

He concluded by summarising the main dangers facing the global economy. Governments, particularly in the south must not tire of sorting out the Eurozone’s structural issues and in the UK, cheaper funding leading to another housing boom.

Wuthering Heights

Given recent activity in equity markets, ‘Wuthering Heights’ seemed an appropriate theme for Nick Kirrage, who argued passionately for ‘value investing’, where the price paid determines the return. He suggested that, despite strong markets, it was still possible to finds stocks that offered good fundamental value, often in sectors that were generally deemed to be out of favour, including banks and house builders. As such, whilst markets are likely to be volatile, there are continuing opportunities, and he listed the UK banking, pharmaceutical and UK domestic sectors as some to consider.

Paradise Lost

Chief Investment Officer for Fixed Income, Philippe Lespinard, spoke of a ‘Paradise Lost’. He argued that, despite low bond yields and a universal expectation that they will rise, it was still possible to produce good returns. He accepted however that, rather than only considering developed countries’ government bonds, to achieve good returns, investors should look at both corporate and emerging market sovereign debt.

The Shape of Things to Come

In ‘The Shape of Things to Come’, Alan Brown, Schroders’ Senior Adviser and a trustee of the Wellcome Trust examined issues of managing portfolios in inflationary and deflationary environments. He returned to the recurring theme of US tapering, arguing that much depended upon the ability of the Federal Reserve to normalise monetary policy without either creating inflation or “crushing the markets”. He was comforted that not only was the Fed’s current approach sound, but equity valuations remained attractive and the corporate sector was in good shape. He was concerned however that Quantitative Easing had already reached US$8 trillion and would be almost US$3 trillion higher by 2015. He looked to Japan as an example and pointed out the dangers of a persistent ‘Output Gap’. In conclusion he said that not all inflation is the same and, whether there was inflation or deflation, investment strategies had to be flexible with the ability to adjust quickly to different scenarios.

Great Expectations

Mark O’Kelly, Head of Finance at Barrow Cadbury Trust, contributors to the Schroders-sponsored ‘For Good and Not For Keeps’ report, concluded with ‘Great Expectations’. He examined the issues facing trustees and their role in deciding how to balance the needs of the present against those of future generations. He examined how annual spending rates have fallen from more than 10% in the ‘80s and ‘90s to around 3% or 4% and even at these levels, the current danger of eroding capital is significant. He admitted however that the Cadbury approach was still to spend according to need, at between 5.5% and 6%. In summary, he said that trustees had four options: 1] Spend out, 2] Reduce spending, 3] Find additional funding and 4] Adopt a different approach – and in considering these, keep an open mind and pursue the mission using all available resources. 

The final forty minutes of the event were devoted to Gyles Brandreth, a veteran of the British Library and famously “vociferous vocabulist”. Whilst keeping his audience laughing, he managed to deliver a very powerful message about the importance and richness of language and how words should be cherished. In a startling warning, he told us that, while Shakespeare’s English contained some 30,000 words, the average ‘educated man’ now uses 15,000 words and younger generations can use as few as 800. I wonder how many I have used in this report…

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital Management does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital Management has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital Management is a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.