We are now almost two years on from the initial stages of the pandemic. While charities have been affected in varying ways, and to different degrees, they are now looking to plan ahead. Assessing how the landscape may have changed, and what organisations need to do in order to build for future sustainability, means constantly applying the learning already gleaned.
Investec manages money for around 1,100 charities, and its head of charities Nicola Toyer observes that organisations went through a range of experiences. “Flexibility has been really key, not just for them but for us in terms of how we adapted on behalf of clients in fast-changing circumstances.”
Karen Atkinson is finance director at Bridge House Estates (BHE). She states: “The charity is over 900 years old, and its prime objective is to support the maintenance of the five bridges into the City of London.
“We hold various investments, which allows us to also distribute grants supporting disadvantaged communities.” BHE’s corporate trustee is the Corporation of London.
“As a significant (£1.6bn) endowed charity, initially we had huge uncertainty around our investments. The timing of the pandemic and a March year-end meant sudden significant losses on the balance sheet and we lost £16m almost overnight. Our substantial directly owned property portfolio meant added uncertainty as a landlord. The government quite rightly focused on the tenant but there was no understanding of the landlord’s point of view, where they might rely on that rental income to carry out their charitable objectives. Of course, we were mindful of our tenants and introduced support such as rent holidays but ultimately we need to earn that income to operate.”
Kate Morris, finance director, explains the contradiction in Morden College’s name. “We are neither based in Morden nor have anything to do with education. We were founded in 1695 by Sir John Morden, and are an almshouse and a charity dedicated to supporting older people that has grown in size, based in Blackheath. The college bit refers to collegiate as our objects were to look after professional men who had been merchants and had fallen on hard times. That has broadened now to include women, but all need to have lived a life of contribution to live in our flats. We have over 300 residents, and a care home on-site, which presented its own non-financial challenges during the pandemic but through a combination of luck and hard work we lost one member only.”
The college is permanently endowed. She says its experience mirrors that of BHE. “It was a challenge to be relying on income from freehold properties and financial investments. At the end of the first quarter following lockdown we were down by £2m due to rents dropping. It recovered but was scary. We also felt that the government wasn’t thinking about us as landlords. We need rent to literally run the charity. We had reserves so were lucky but if we hadn’t, we would have been really stuck.”
The college also benefited from furlough. “And we have calculated we had at least an extra £800,000 of Covid-related expenditure on things like masks, cleaning, and a shopping service for residents. This is now incorporated into regular budgets instead of being an exceptional item.”
Louise Davies is head of finance at the Representative Body of the Church in Wales, which was disestablished from the Anglican Church in England in 1920. “It has been an interesting couple of years,” she muses, “with our income coming mainly from investments but the initial worry over dividends seems to have eased.”
However, parishes are finding things tough. “We are the equivalent of the English Church Commissioners. We pay the clergy and recharge the dioceses, who in turn recharge the parishes. When we went into lockdown, church buildings had to close and so parish income streams dried up overnight. We have an online giving scheme to assist with giving for parishes and so the first thing we did was to encourage more online giving. Although this equates to almost £300,000 a month it isn’t enough. Parishioners have been putting money in the plate for many years – it can be hard to change. Even now, congregations are 30 to 40% down on pre-Covid levels.”
The Church took the decision to support the parishes and made £6.3m available in both 2020 and 2021 to dioceses to assist parishes. “This has kept the wolf from the door but we have an ongoing problem. Where now? We have a problem with the number and complexity of our buildings.
Zoom meetings have taken off in some parishes, which is great, but that success means some churches have not really opened so there is no in-person giving. They are attending services but not a church itself. Going forward we have all these properties which are underused. Is it sustainable? It wasn’t easy pre-Covid so is a real challenge.”
Janie Oliver is chief financial officer at Stewardship. It provides a giving platform and is a donor-advised fund (DAF), where a community of 40,000 givers donate £100m annually. She relates the opposite experience in terms of church giving, reflecting Stewardship’s different make-up. Oliver has been in post for just over a year, so as she joined part way through the pandemic can’t speak for the whole period, but says that revenues increased significantly in 2020. “This was in part testament to the generosity of our UK Christian givers, as a response to the pandemic. And some of it was due to new initiatives. A rapid response fund launched in March 2020 raised £5.4m in 100 days. We also saw online giving platform new accounts double over the year.”
In terms of investments, she says: “The decision had been made to liquidate some investments in 2020 and this programme of divestment continued into 2021. We therefore temporarily have a very liquid balance sheet, but also a new investment strategy, which will make it less liquid while de-risking. Over the last few years, we’ve run a deficit budget to use up our surplus unrestricted reserves. We are a charity but we also have to be competitive with other for-profit DAFs. So we need to invest in our technical infrastructure.”
Motability is a complex beast, says its finance director Charles Nall. “There is the charity, and the more well-known Motability scheme, which provides £11bn worth of cars to disabled people, and is run by Motability Operations (MO) under contract to Motability. The rationalisation of the capital structure and a new endowment prior to the pandemic should help to smooth the swings in donations from MO. We were lucky as we recognised Covid as an issue early, declaring a major incident in February 2020. We went into business continuity overdrive, not knowing how things would go. Initially car dealers shut, therefore our ability to supply cars stopped. We went into hibernation and didn’t take furlough as we felt we had sufficient resources. We did see a significant fall in marginal costs, but it was too early to understand the income risks. We undertook a lot of due diligence with money market funds, and were heavily liquid when bond markets collapsed in March 2020. Our investments have subsequently enjoyed a steady gradual rise, but it feels a bit bubbly. We are looking into diversifying into alternative investments to mitigate risk.”
Toyer reflects that what resonates across what has been said is that charities had to suddenly navigate challenges to income, due to huge changes to markets and structure in March 2020. “We entered and exited a bear market in 33 days, which is extraordinary. There was a lot of uncertainty, and as an investor it was impossible to plan. How you reacted was crucial. For permanently endowed (PE) charities reliant on dividends, where was the income going to come from? For those not employing a total return strategy, we advised them to seek Charity Commission permission to draw down capital and income.”
Diversification
Atkinson points out that as a PE charity, BHE has strategic aims to be very long term. “While we were nervous about income over the pandemic, we do hold investments outside of our endowment that enable us to fully access gains made. But my challenge to fund managers is about how you deal with that perpetual view, how do you position us now so we weather the storm and survive, for 300 years and beyond. Reserves help to a degree but we want underlying assets to be growing regardless of the pandemic.”
Toyer responds by saying that a 300-year time horizon makes it easier in some ways as you can tolerate the risk of short-term volatility in equity markets. “You need to navigate that volatility so will still require some fixed income assets to manage liquidity. Some alternatives can lock up capital. There are infrastructure funds, liquid hedge funds, and property, for example, but if you go further you can end up investing in less liquid vehicles. Do you want liquidity from equities or bonds? Equities can be volatile so there is still a place for bonds in a balanced portfolio irrespective of the lower returns of fixed income, which I see more as a source of cash in the shorter term rather than to generate income over 300 years.”
Accelerating change
Oliver says that due to Covid, Stewardship undertook a review of financial strategy and over the last year has recruited into the finance team. “This expanded capacity means we now have a new investment strategy and investment policy, a new reserves policy, and a new liquidity policy.”
Atkinson says BHE has been going through governance changes as well, which is a considerable task. “We have established new governance procedures in the ways in which we report to our corporate trustee, and we are also developing a new investment strategy with the pandemic driving home a real need to do this.”
Nall says that as Motability gets large occasional lumps of income, it has to plan actively with five to 10 year scenarios. “Things might continue as now, and historically that has been the most reliable indicator. But every six months we re-forecast the next decade. Our key issue is growth. We are recruiting to support new grant programmes based on our research into our beneficiaries. Our objects are helpfully narrow – transport needs for the disabled. With the rise of electric and self-driving vehicles, a key question is how can we influence the accessibility of cars as things change? It’s a lot of scenario planning to determine what will affect our priorities. Covid has accelerated those changes enormously and, given the way society is moving digitally, we want to avoid our beneficiaries being cut out of the loop. The risk of the disadvantaged not being listened to, due to lack of economic punch, is something that concerns us.”
Diversity
As a funder, Atkinson states that the pandemic highlighted the disproportionate impact of inequality, especially around health. “We have made practical differences to our grantmaking, and introduced publicly available reporting for the first time displaying how our funding has been driven by different needs, prioritising across protected characteristics.”
The pandemic in conjunction with the Me Too and Black Lives Matter movements raised the level of understanding about injustice in society, says Nall. “While we have an extensive diversity, equality and inclusion agenda, the move to a blended working culture makes it more important to bind people together, but harder to establish. There is a danger in that hiring less diversity makes it easier to establish a homogenous culture, so I am trying to counter unconscious bias, for instance through anonymous CVs when recruiting.”
For Davies, diversity in the church is an evocative subject. “We are looking at our age profile so for us diversity is about getting more young people in, at a time when increasingly young people have other interests such as playing rugby on a Sunday morning. We have set up a £16m evangelism fund for outreach in communities such as new housing estates, where there is no church presence. We are also focusing in areas near universities.”
Oliver views diversity as “a journey” comprising two parts – staff and the board. “We have 90 members of staff, 52 are female and 20% are from ethnic minority backgrounds, which is better than 15 years ago. Across the organisation we are trying to talk about diversity to make people be aware.”
Toyer concludes by confirming that it does take time to improve the culture. “It isn’t enough to have diversity, you also need inclusion and belonging, otherwise you are just box ticking. How do you build that? Working from home and hybrid working has helped make the workplace more accessible to employees from different backgrounds.”
How the charity sector embraces the opportunities of further embracing the diversity agenda, and the transformation in strategy and working patterns that the pandemic has led to, will be key to how far it fully recovers from, and thrives beyond, the quite extraordinary last two years.
With thanks to Investec for its support with this feature
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