STEP journal has pusblished an article by Amie O’Callaghan and Vikash Gupta, where they consider the importance of a thoughtful investment strategy in ensuring a UK charity’s sustainable success and long-term ability to achieve its mission.

You can read the full article below:

For many charities, managing investments can become a challenge. Trustees are often highly focused on mission delivery, but the reality is that investment decisions directly aff ect the ability to fund programmes, support communities and preserve the charity’s long-term future. In today’s economic environment, investing with a clear, disciplined approach has never been more important. In this article, when the authors refer to ‘charities’, this includes both charities and foundations, since the investment challenges and opportunities they face are often similar.

Why investment strategy matters

Many UK charities hold significant amounts of their funds in cash. As of 2022, charities with annual incomes over GBP500,000 collectively held around GBP250 billion in assets, with approximately GBP31 billion (13 per cent) in cash. Over half of these charities (57 per cent) reported having no long-term investments at all, relying solely on cash and fixed assets.

This is concerning because inflation erodes the real value of cash. Over the past five years, the purchasing power of GBP20 has fallen by roughly 25 per cent – meaning that GBP20 in 2020 is worth only about GBP15 today. 2 For charities, this illustrates the risk of leaving signifi cant reserves in cash: without generating a return, donor funds lose value in real terms, limiting what those resources can achieve. Although holding cash may feel safe, it can, in fact, undermine a charity’s ability to deliver its mission in the future.

Trustees’ challenges

It is understandable that many trustees feel cautious about investing. In fact, 58 per cent of charity leaders say that generating income and achieving financial stability is one of their top three challenges. 3 Other common concerns from trustees include:

● limited financial knowledge: trustees often bring strong governance and operational expertise but have less familiarity with investment principles;

● market volatility: fluctuations can appear risky, especially when safeguarding charitable funds;

● accountability: the fear of making mistakes, alongside legal responsibilities, can add pressure to decision-making.

Charity Finance Group, ‘Becoming more imaginative with charity investing’ [URL: https://cfg.org.uk/knowledge-hub/becoming_more_imaginative_with_charity_investing]

Office for National Statistics, ‘Consumer Price Inflation, UK: August 2025’ [URL: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/august2025]

Charity Link, ‘The cost of living crisis impact on UK charities’ [URL: https://www.charitylink.net/blog/cost-of-living-crisis-impact-uk-charities]

Office for National Statistics, ‘Consumer Price Infl ation, UK: August 2025’ [URL: https://www.ons.gov.uk/economy/infl ationandpriceindices/bulletins/consumerpriceinfl ation/august2025] 1 Charity Finance Group, ‘Becoming more imaginative with charity investing’ [URL: https://cfg.org.uk/knowledge-hub/becoming_more_imaginative_with_charity_investing]

Steps toward building an investment strategy

Start with education

The first step in any effective investment strategy is educating trustees. Understanding the basics of asset allocation, risk versus return and long-term investment horizons empowers trustees to make informed decisions. Workshops, training sessions and guidance from experienced financial advisors are highly recommended.

Seek professional guidance

Specialist advisors can:

● translate complex concepts into practical options;

● define a strategy aligned with the charity’s objectives and risk tolerance;

● ensure compliance with fiduciary duties; and

● monitor performance and rebalance portfolios when necessary.

Working with professionals reduces the burden on trustees and increases the likelihood of sustainable success.

Diversify

A well-structured portfolio spreads risk while balancing income and growth. Typical components may include:

● equities for long-term growth and inflation protection;

● bonds and fixed income for stability and predictable cash flow. A laddered maturity structure can provide steady cash flow while reducing interest-rate risk;

● alternatives such as listed hedge funds to provide absolute returns or mission-aligned funds; or

● cash for immediate expenditure needs.

Diversification helps smooth returns and protects against volatility.

Aligning investments with the mission

Investing is not only about financial return, it is also about values. Many charities are choosing mission-aligned or ethical investment strategies, avoiding sectors such as tobacco or fossil fuels, and seeking opportunities that reflect their social purpose. This ensures that investments reinforce the charity’s mission. In conclusion Charities and foundations do not need to choose between safety and growth. By educating trustees, leaning on professional advisors and adopting thoughtful investment strategies, they can protect their reserves against infl ation and put them to work in a way that strengthens the charity and helps its mission last into the future.

#Charities #Investment #Ethics and Standards #Trusts #foundations #UK

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About VAR Capital:

VAR Capital is an independent financial services firm offering asset management, lending and family office services. It was founded by individuals with extensive experience from Banking, Asset Management and Family Offices. Based in Mayfair, London, VAR Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA).

Disclaimer:

This message is provided for information purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments, nor does the information constitute advice or an expression of our view as to whether a particular financial product is appropriate for you. Please note that we do not provide any tax or legal advice and clients must seek their own tax advice independently.

Source: VAR Capital

Media Contact: Vikash Gupta, [email protected]