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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

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Trustees are too scared to invest reserves

This news post is almost 5 years old

A new report explores why UK charities are holding on to nearly £17 billion cash

Charities are holding onto nearly £17 billion of cash in bank accounts because of fear of making an investment mistake, according to new research.

Aberdeen Standard Capital (ASC) has released the results of a major survey into why charities are failing to invest reserves and therefore failing to make the most of spare cash they have in bank accounts.

The research, carried out by The Centre for Charity Effectiveness at Cass Business School, identifies, for the first time, the barriers to setting and executing an appropriate investment policy and provides a toolkit for trustees to identify their own individual “tipping point” where they are comfortable moving from cash holdings to investing for the first time.

It identified a lack of knowledge amongst trustees about how to invest funds because of this they often fear losing charity cash, incurring reputational damage or getting into trouble with the charity regulator.

The research found that over 5,000 UK charities are sitting on over £16.7 billion of uninvested cash.

The research identified four important questions that charities must ask: how much does the charity need to operate, how much cash does it need to hold in reserve, what is the tipping point at which cash should be invested, and whether to hire an investment manager.

However, ASC has identified that understanding is the first and most important step towards investing.

While these questions may seem straightforward to answer, the analysis found that fear and a lack of knowledge is the common barrier that leads to inertia and biased choices which hold charities back.

Julie Hutchison, charities specialist at Aberdeen Standard Capital said: “Trustees have a duty to ensure that charities are invested appropriately. As our research identifies, in practice there are many barriers to moving from holding cash to investing and each charity will have its own tipping point.

“Many charities do recognise the value of prudent investment management and see the opportunity to use environmental, social and governance research and ethical screening to align their investment strategies with their cause. However many good intentions are yet to be actioned.

“Investment involves risk but need not involve fear. By understanding the investment journey and knowing when help is required charities can move beyond their tipping point.”

While fear of investment featured strongly in the research, it also identified fear that inflation will erode the value of cash holdings.

The report includes a toolkit to help charities identify where they need support and guidance.