The Emperor’s new clothes
We have recently noticed a significant influx of pension consultants entering the charity and endowment market, offering Trustees investment services. One reason for this is the so-called death of the Defined Benefit pension scheme, where companies were liable for their employee’s pensions and had to call on these consultants for actuarial and investment advice. Now most of these schemes have closed, pension consultants are paying considerably more attention to charities and not for profits.
This is a good thing because it offers charities more options for independent advice, but care does need to be taken:
Investing for a pension fund is very different to investing for a charity. A charity generally has no fixed liabilities while pension schemes have many. Pension funds must make their investments meet their liabilities (or tap the employer), but charities can adjust their liabilities to meet their investments. This makes charities volatility tolerant.
Charity Trustees do not need to seek advice (although it’s often recommended) whereas legally a pension trustee must take investment advice. This advice is often complex and involves onerous calculations which are unnecessary for a relatively simple charity. Reports are often over-engineered, running to many pages and thus confusing. Our previous blog highlighted that intelligent things can be expressed using very few words.
We are often approached by charities with an investment problem, only for it to turn out to be disguising a more general financial or governance issue. This can come in many guises, from not spending enough, Trustee and Senior Leadership Team disagreements, succession planning, declining beneficiary bases, fundraising or income dilemmas.
Pension consultants are used to working with investment consultants to provide the trustees with a technical solution to a known liability, whereas in charities what matters is that the trustees understand how their finances fit in with their spending plans so generally the simpler the better. With over 60 years of collective working inside charities, Yoke knows these issues as we have been though these with our executive or trustee hats on, many times.
This reminds us of the story of the Emperor’s New Clothes as told by Hans Christian Andersen. While the crafty weavers were able to convince the Emperor that everyone else was too unsophisticated to appreciate the beauty of his fine clothes, eventually a child saw through this pretence (literally) and called it out. We would never argue that things should always be simple, but unless there is good reason, they should not be too complex.
Helping charities with investments is more than choosing the correct assets or manager. It is understanding how a charity works, how it uses its assets, and its dynamics and stresses. While we are authorised and regulated by the Financial Conduct Authority to provide investment advice, we spend more time in general governance mediation that is not investment advice. We are always open to listen, especially if it’s an investment problem that isn’t in fact an investment problem.
If you want to talk, please do not hesitate to contact us.