Charities ‘overpaying for investment management services’, study suggests

02 Feb 2018 News

A study of some of the largest charities’ accounts suggests that voluntary organisations are paying more for investment management services than other sectors.

SEI report

Investment firm SEI studied the accounts of 66 charities in the UK, all with assets of more than £20m, and found that the average fee paid to investment managers is 0.93 per cent.

The firm also allocated a £60m endowment equally across three leading single manager charity investment funds (CIFs) and found that average fund charges were 1.18 per cent.

Finally, it looked at fund-of-funds using a real investment valuation for a charitable endowment of £30m and found that the charity was paying a weighted investment management fee of 1.08 per cent.

Based on these findings, the study estimates that the charity sector overall, with assets of £100bn, is paying investment management fees of between £930m to £1.18bn.

By comparison, the study quotes research from accounting firm EY in 2015, which found that fees paid by comparable-sized pension schemes were 0.73 per cent.

The study also quotes research from Lane Clark & Peacock last year which found the average management fee paid by pension schemes was 0.8 per cent.

It concludes that the charity sector could be overpaying for investment management services by more than £250m, although it concedes that “the charitable sector may have benefited from positive investment results in return for these fees”.

Pradeep Kachhala, director of UK charities at SEI Institutional Group, said: “It is concerning that the charity sector could be significantly overpaying for investment management services, and our analysis demonstrates that a renewed focus is needed.

“This notion supports one of the key tenets of the Charity Commission’s CC14, which recommends that trustees consider the costs of a manager or adviser.

“Trustee boards should consider alternative models that could ease their governance burden, as well as provide economies of scale that potentially reduce costs.”

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