Charity investment managers expect to switch to active investment strategies from passive to both combat market volatility and align with their core values when it comes to responsible investment over the next three years, according to research from Investec.
Generating a strong income on their portfolio will also remain an important part of the investment strategy.
Nicola Toyer, head of charities at Investec, said: “Over the last few years, we have seen an increase in the number of charities looking for an active tailored solution that is focused on their requirements. While income and financial return are key drivers for charities, the other reason the demand for active management has increased is a result of charity requirements around responsible investment.
“ESG integration and stewardship are crucial for charities that are looking to demonstrate their investments are aligned with their values and this is more effectively delivered through an active strategy. There is clearly very much a demand for responsible investment alongside maximising the financial return from portfolios, and a growing shift from a reliance on passive strategies to a more active approach to investment management across the sector.”
The study with senior executives at UK charities with a collective $4bn of stock market-related investments found around a third (31%) of those surveyed said a strong income was very important. Achieving a strong income flow has been difficult over the past two years, with around two out of five saying that the level of income generated from their portfolio has dropped in that time. Roughly a third said it stayed the same as before the crisis, while the same number said it had increased.
Some 93% of investment managers surveyed said there will be a move away from passive to active over the next three years with 16% predicting a dramatic switch to active instead of passive.
Around 78% believe active managers’ performance is improving due to the data revolution – the ability to use data better to make more informed investment decisions. Around 60% said it’s because active strategies tend to perform better in more volatile markets. Meanwhile, 56% said it’s because they can provide greater protection in volatile market conditions.
