In the sector press
The New Normal
Kate Rogers, Portfolio Director and Head of Policy at Cazenove Charities shares her thoughts on issues faced by the charity sector in Third Sector Magazine every other month.
I find it amazing how our language changes, how words morph to describe different things and phrases enter into the popular lexicon. Perhaps these phrases are so ‘successful’ because they succinctly and effectively capture a mood or sum up an experience that many can relate to. 'The New Normal' is one such phrase, in common use to describe how a situation that once was shocking becomes familiar, and suggesting that it is likely to persist.
In finance, the new normal phrase has been used to describe the economic world after the credit crisis in 2008. The phrase was coined in May 2009 by Mohamed A. El-Erian the head of PIMCO, one of the largest active global fixed income managers in the world. This new world is characterised by low economic growth as individuals, companies and governments pay down debt. The sluggish growth was not to be a one year recession, no single dip, but multi year depressing economic conditions. With government spending cuts, low growth and high unemployment, 'the new normal' is a tough environment for charities.
A recently released report, the latest in a series produced by PwC, Charity Finance Group and the Institute of Fundraising, looks at how charities are reacting. Aptly titled 'Managing in the 'new normal' - Adapting to uncertainty' it unsurprisingly finds that charities are facing an increase in demand for services but a much more difficult fundraising environment. However, this survey gives further evidence of the resilience and adaptability of the sector, with more charities examining other funding sources and collaboration on the up. The charities surveyed remained open to the idea of drawing down on their reserves and a majority said that the finance function has become more engaged. Perhaps the most interesting conclusion from the report is the feeling that there is less doom and gloom, and a spirit of optimism emerging as the sector becomes accustomed to this 'new normal'.
For investments the new normal was expected to mean lower than par equity market returns and even led some to declare the that 'the cult of the equity is dying'. How wrong. Since the 'new normal' phrase was coined in May 2009 the UK equity market has returned an incredible 78%. But what if economic growth remains slow? Doesn't that mean that equity markets will deliver poor returns? Not necessarily. A 2005 study by Dimson, Marsh and Staunton, analysed returns in 53 countries and did not find evidence of a stable positive relationship between GDP growth and equity returns. A new paper by Schroders proposes a correlation not with actual GDP growth but with expectations. Equity returns are more likely to be good if GDP growth is above expectations. So if we all expect the worst, things might just turn out better. Not the spirit of optimism that we like to cultivate!
Although recent equity returns are impressive, they pale in comparison with the huge increase in usage of 'the new normal' phrase. The Australian newspaper gave the term the title "Cliche of the week" in 2011 noting that its use had increased from 50 uses a month in 2002 to 700 by May 2011. Its usage has only accelerated since then, and the phrase has even crossed over into television, with E4 now airing a series of the same name.
So when does the new normal become just normal? And what is normal? We are all tasked with doing our best to deliver our charitable aims whatever the prevailing economic weather, normal or otherwise. It is best to focus on this challenge.
This article was first published in Third Sector Magazine, April 2013
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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.