James Pike, head of charities at JO Hambro Investment Management, explains the challenges - and rewards - of working with charities.

It seems that the UK’s firms have been going after the charities segment a lot more aggressively in recent times, but while serving such clients can be immensely rewarding wealth managers need to remember that it’s “not for the faint-hearted”, James Pike, head of charities at JO Hambro Investment Management told WealthBriefing in a recent interview.

Watchers of the UK wealth management industry will have noticed that charities seem to be much higher on the agenda recently, with several firms making additions to their charities teams. Last month, for example, Jupiter Asset Management named Andrew Clark - the former head of business development for Schroders’ private banking arm - as its new head of private clients and charities, while JOHIM itself recruited Francesca McSloy for a dedicated charities marketing role and appointed Edward Novis as an investment manager for its charities team. Meanwhile, we have investment houses like Four Capital Partners launching products aimed at charities and it is a noticeable trend that charities work is figuring much higher in wealth managers’ marketing literature.

It surely can’t be that charities are finding themselves awash with cash in today’s straitened times, so what is going on?

According to Pike, it is not the case that charities have more cash which needs to be managed now. Instead, rather paradoxically, wealth managers are expanding their charities teams due to the difficult economic climate making things tougher for charitable organisations. As Pike points out, there may be less money around to run at present and there are signs of more charities debating merging, which could create new opportunities for investment managers. Added to this we have the fact that charities are now more concerned about their investment management than ever before, having as they do large, fixed outgoings amid a low interest rate environment. It might also be the case that the maelstrom following the financial crisis has revealed some money managers not to be as good as they appeared in less difficult conditions.

One of the challenges – and opportunities – facing wealth managers targeting charities is that these organisations usually review their investment management provisions regularly, Pike notes; while private clients tend to stick with their wealth manager until they are unhappy with their performance, charities might be compelled by their articles to review their provider as often as every three or four years – and the crisis can only have increased this rate of churn. Put simply, “firms are expanding their charities teams because there are a lot more opportunities to pitch,” said Pike. “I’d be very surprised if the overall pool of assets is any bigger now than it was five years ago…it’s not like there’s suddenly more money coming into the sector,” he continued.

Putting in the leg work

Any wealth managers thinking that the UK’s 170,000 charities represent “low-hanging” fruit will soon be disabused of this notion, however, because, as Pike explains, securing charities business can be very onerous indeed.

The process “can take many months” from the initial letter inviting wealth managers to pitch to taking on funds, Pike said, adding that in one case in his experience this took a whole year. Even in a more typical case the process usually takes three to four months, he explained – from initial due diligence to long-listing, and then from approval to meeting with the charity’s trustees and investment committee. Exhaustive though this process may be, this caution is well justified on the part of charities, he notes, because “it’s both costly and time-consuming” for them to make a change. “Trustees want to find the best manager for them and they want to be able to stay with them,” said Pike.

Aside from the much more arduous due diligence process, another crucial difference between charities and private clients is that the  former – unless they are very large organisations – tend to prefer to stick to one investment manager whereas large private clients tend to be multi-banked for diversification purposes. There are several reasons behind why charities with £500,000 (about $800,000) to £5 million tend to go high-conviction with one investment manager, explains Pike. Not only does this provide these investors with “critical mass” from the perspective of holistic asset allocation and keeping fees down, but it also reduces the complexities of reporting for charities – something which of course they have to be very stringent about, as they are after all answerable to donors. “Charities’ finance directors have  enough on their plates…it’s  quite difficult to keep tabs on multiple managers,” said Pike. To illustrate his point, he explained that JOHIM’s biggest charities client has only two investment managers despite being worth £60 million.

Broad shoulders required

So while very large charities might award mandates on an asset class basis to multiple providers (some organisations have significant real estate portfolios for example), it is usually the case that charities choose one investment manager with a view to the long haul. Serving charities is therefore “a massive responsibility”, in Pike’s words.

The other ways in which charities represent a “special case” in the wealth management space include a preference among charities for a direct equities approach over funds of funds because the latter is easier to monitor on an SRI basis. Adding to the constraints on wealth managers, charities tend to grant global, multi-asset class mandates while also wanting a conservative to balanced strategy which will deliver real returns over a five-year plus period.

Charities are clearly not a low-maintenance segment and serving them is marked by a need for a lot more communication than with other types of institutions. Even at the pitching stage, communications are key, said Pike, and it is not uncommon to visit the charity to carry out initial research and ask all the questions necessary to devise the most appropriate investment strategy. Then once the business has been won there is the “very delicate process” of transferring and shaping the investment portfolio, he continued. After this, charities need constant reassurance that their wealth manager is on top of the situation when it comes to the health of their investment portfolio.   “A lot of time and work is taken to explain the evolving economic situation to trustees and how the portfolio is positioned accordingly” said Pike adding that when it comes to communications in particular his firm treats the boards of charities much more like a private client than an institution.

Happily, most investment managers who end up specialising completely in charities tend to come from a background of serving a mixture of both charities and private clients high net worth individuals, Pike notes. But as well as needing broad-based experience, he believes that the most important quality a charities relationship manager needs to evince is commitment. “The most important thing is to really care about it - it can be a lot of work and you have a lot of accountability,” said Pike.

Pike clearly cares very much about the charities he runs money for and he believes that being able to show this has helped JOHIM to fend off competition from some of the larger players it has gone head-to-head with in pitching rounds. JOHIM has in fact been successful against one Wall Street banking giant which is regarded as one of the world’s leading charities players, and “regularly comes up against the great and the good” on the charities circuit, he revealed.

JOHIM has also built up an enviable reputation in the education and health charities sector, Pike said, and this has helped it to build a book of 95 charities clients, in which Oxbridge colleges and very high-profile UK health charities figure. This client list has been built up over a 20-year period and it is only relatively recently that JOHIM decided to put this side of its business more in the spotlight. “We didn’t really shout about the charities business before but about four years ago we decided to institutionalise the investment process and form a charities investment committee,” Pike explained.

Today, JOHIM’s charities team is six-strong and manages a total of £300 million in assets (as at end-September) and it is firmly focused on continuing to grow. While in the past a lot of the firm’s charities business came via existing private clients who were also the trustees of charities, today JOHIM actively markets itself to the advisors of charities. “These are largely the big consultancies and to a lesser extent lawyers and accountants,” Pike said, adding however that word of mouth recommendation among trustees is still a big boost to business. 

JOHIM certainly faces robust competition in the UK charities space – Barclays has made this side of its business a growth priority and the likes of Schroders, Ruffer, Rathbones and Sarasin are all strong charities brands. But, as Pike has explained, serving charities is no walk in the park, particularly when the reporting and pitching side of things is taken into account. “It’s not for the fainthearted…you have to know that you want to be there,” he concludes.