The Regulator for Charities in England and Wales
A summary of a discussion held on 24 November 2009
The purpose of the research was to assess the extent to which some of the largest trusts and foundations were taking an actively strategic approach to their investments and delivery of aims (including grantmaking), and to explore the relationship between the two within the context of the economic downturn.
Organised jointly with the Association for Charitable Foundations, the seminar provided an opportunity for those who contributed to the research, as well as other representatives of this part of the sector, to discuss some of the particular issues they are facing. The discussion was lively, wide-ranging and thought provoking.
Please note that this is a summary of the discussions held on the day and does not necessarily reflect the opinions of the Charity Commission or the wider charity sector, nor is this an exhaustive account of all of the issues which were raised.
There are perceptions amongst the wider charity sector that the trusts and foundations have been badly hit by the recession and, as a result, have significantly cut back on their grantmaking. However, the group present, reflecting the findings of the ‘Firm Foundations’ survey, highlighted that they have actually been striving to maintain levels of grantmaking. It was noted that this includes mostly the larger trusts and foundations, and smaller foundations may be in a different position. The complexity of the sector means that it is not possible to give one answer to how the sector is faring during the downturn.
It was therefore suggested that trusts and foundations could do more to raise awareness in the wider charity sector, and the media, about how the economic climate is affecting what is a very diverse spread of trusts and foundations in reality.
Many of those present indicated that they had not yet seen the level of increase in applications they had anticipated, and indeed the rate of applications to some had remained fairly stable.
It was suggested that a reason for both the lack of increase in grant applications, and the poorer quality could be related to the misconception by some that the grantmaking sector has “closed its doors” and to the fact that charities were focusing resources on securing core business rather than looking at new projects and funding streams.
The foundations emphasised that they support a strategic approach to their grantmaking. For some, this means providing grants to cover charities’ core costs, as opposed to purely funding service delivery projects. It was noted that, if this really is the approach that many in the trusts and foundations sector are adopting, more work might usefully be done to communicate this to the charity sector who may not perceive that this is the case at present.
It was pointed out that whilst there is merit in providing funding to cover charities’ core costs, providing unrestricted funding can be even more useful.
The question was also raised as to whether funders had raised the bar too high in terms of what they expect from funding applications. It was suggested that perhaps now was the time to reopen the debate about having more core funding as opposed to project funding.
The Charity Commission’s most recent survey of the impact of the economic downturn on charities found that 56% of charities have been affected by the recession. A report by the Lloyd’s TSB Foundation for England and Wales found that 97% of the charities they surveyed get some money from trusts and foundations. 90% receive public sector funding. Charities with an income of £50,000 or less in particular appear to be struggling as they don’t always have the capacity to diversify their income streams or to deal with volunteers.
However, it was suggested that we are currently experiencing a “phoney war” in terms of the true impact of the recession on the charity sector. Reliance on public sector contracts in particular means that the full impact may not be seen until many contracts come to an end in March 2010, or 2011.
In addition, whilst many foundations reported that they are able to manage with the decrease in the value of their investments, there was a view that they should be prepared for a prolonged period of low interest rates, and the impact this may have. Some people thought that support for trustees in how to take a strategic approach to managing investments and to build their knowledge and confidence in making decisions about investments would be helpful. There was also some discussion about mission related investment models.
It was highlighted that trustees have an important role and responsibilities in guiding the investment decisions that their charity takes. It must be clear that decisions regarding investments must be taken collectively, not just by financial trustees.
It emerged from the discussions that there is scope for foundations and trusts to play a greater role in sharing experiences amongst themselves, and learning from each other. The ACF is already working to promote this, for example, it is currently compiling members’ experiences regarding spending out which will be shared with all trusts and foundations. It would be useful for the sector to do more of this.
The Charity Commission is currently reviewing various pieces of guidance relating to financial issues. There is also a dedicated page of resources on the website at http://www.charitycommission.gov.uk/enhancingcharities/economic.asp that brings together in one place information charities need in order to understand, prepare for and react to the changing financial situation.
These resources include ‘Big Board Talk: the conversation all charities need to have’. This covers key areas where charities tell us they are most vulnerable and asks 15 questions to help trustee boards look at both the options and opportunities available to them. It was suggested that a similar publication specifically aimed at trusts and foundations, perhaps jointly produced with ACF could be useful. This is something which we will explore.
In addition, ACF has provided advice and guidance to its members through various means, including the ‘Professional Development Programme’, events on financial scenario planning, and events on investments for trustees this year.
There was some discussion around the Charity Commission’s role in providing specific guidance to charities on issues such as investment strategies, applying a total return approach to investments, or reserves levels. Some participants felt that Charity Commission guidance could be more prescriptive e.g. prescribing how many months’ running costs charities should keep in reserve, or a prescribed payout rate for endowed charitable funds. However, it was made clear that this is not within the Commission’s role, which is to set out the legal framework within which charities must operate. Decisions regarding the running of their charity should be taken by trustees, acting in the best interests of their charity. Given the complexity and diversity of the charity sector, prescribing an amount which is right for one charity, will not be right for another with different circumstances.
It is clear from the Charity Commission’s own research, this discussion and wider commentary in the sector, that the full impact of the recession on the charity sector has not yet been felt. This is because of a variety of factors, including the trickle-down effect of public spending cuts. However, this is at a time where government is placing greater emphasis on the role of the sector in delivering public services.
Trusts and foundations are mindful of the implications of this on their own sector. Many of those at the meeting noted that they had not yet seen a significant rise in applications from charities for grants. However, many are taking the prudent approach of maintaining levels of support for charities today, whilst being mindful of a potential increase in demand in the next two to three years.
From the discussion, it would seem that there is scope for more shared learning amongst the trusts and foundations sector, and this is something which ACF might usefully facilitate.
There may also be scope for trusts and foundations to collectively communicate the positive messages that have emerged from the ‘Firm Foundations’ research and today’s discussion. The consensus has been that the larger trusts and foundations at least are not cutting grantmaking, as has been suggested, but are striving to maintain levels of grants. The charity sector should therefore feel confident to continue to apply for grants from trusts and foundations.
It was also clear from the discussion that trusts and foundations want to help support the charity sector through the downturn. This includes providing funding to cover core costs, or providing unrestricted funding.