Mallika: Hi, this is Mallika, author of How The Best Invest. One of the things I've been worried about in the pandemic is how charities are coping. According to the FT, there's a 60,000 job losses in charities and a $10 billion shortfall, and today I'm joined by Dominic Fisher of Thistledown Investment Management.
Dominic has managed charity endowments for decades, he is a trustee at the Royal Hospital Chelsea, and a Specially Appointed Commissioner written to by the Queen herself to help them. Thank you Dominic for joining me. Tell me what are the impacts of the COVID crisis on the charity sector?
Dominic: Thank you, Mallika. The obvious one is a drop in revenue. As everybody knows, retail in the high street is closed. Those charities that rely on charity shops are finding it very hard. The Royal British Legion with its poppy appeal has had a very bad year, and across the board of where we are Chelsea, obviously, a number of events you might've expected to be run or have been cancelled.
So there's been a substantial decline in that source of income. Strangely, if you look at endowments, many of the bigger endowment funds are actually showing slight sort of positive returns for the year, which may come as a surprise to most people. But what that conceals is that the income that's going to be generated from those funds is falling.
Many UK charities, not necessarily international ones, will depend on income from the FTSE 100 and the income there is thought to have dropped by about 40%. and at the same time, we know that your interest rates themselves are absolutely pinned to the floor. So there's a combination which is probably on the commercial operations of charities is now - is happening, on the investment side. It'll probably be next year that you'll start to see the reduced income.
Mallika: In terms of charity trustees and directors. What is the most important things that they should consider in terms of the long-term financial health of their charity?
Dominic: Well, this is the problem that I think that they will have to confront next year and going forward, because on the one hand, if they are not very familiar with how the investments work, they may say, "Oh, well, we, we have this as much as we had at the beginning of the year." But on the other hand, when they look at the income potential from those assets, it has really fallen quite considerably.
And I think the longterm concern for charities who may have used a 60, 40, 80, 20 -, some sort of mix of equities and bonds is that as we know, bonds are now very, very low yielding or in many cases negative yields, and equity income has fallen. The problem you have, it seems to me is that you either look at alternatives which tends to be opaque and have fee structures that can be quite high, or you're being asked to take more equity risk to meet what would historically have been quite reasonable aspirations for a fund. There's no magic solution, but that is the reality, and it's certainly one way of looking at it at Chelsea with our advisors and something that we think a lot about.
Mallika: Yes, and I do think capital preservation and value investing might be the answer to some of these problems. What's a good resource to direct people? Where can you learn more about how to invest properly for charities?
Dominic: Well, there are, you know, the main investment houses put out good annual reports on charity investing and look at the various areas, and we haven't talked about ESG investing, which obviously for many charity trustees is very important.
Just looking purely as it were at the numbers, I think if you're a lay trustee, to look at Vanguard's resources or research affiliates or GMO - all of them who give a context for long run returns because it's very easy as an individual to be - the FTSE fell 2% is what is up 1%, and those numbers just confuse you when you're thinking about buying very long-term income streams, which is what you are doing largely when you're investing. The resources I've mentioned are very good at showing you expected returns over five, seven, ten years. The sort of time perspective that our charity trustee is probably looking at.
Mallika: Thanks so much Dominic, and also if anyone wants to reach out to Dominic to learn more, his email is df@thisim.com, or you can find him on LinkedIn Dominic Fisher. Thank you so much and speak to you soon.
Dominic: Thank you very much, Mallika.