Charities’ finance and investment committees should examine the impact that the current record-high inflation has on their income and costs, and consider adjusting their investment strategies to compensate, an investment expert has advised.

Louise Hall, head of charities at Investec Wealth & Management, said that inflation will be more of a threat to some charities than others, where perhaps the biggest cost pressure is wages. But all charities should examine their particular situation and ensure they are responding adequately, she said.

Even before the Consumer Price Index climbed to a record 5.2 per cent last month, Investec carried out a survey amongst 110 charities, both clients and non-clients, to see whether they had considered the effect of rising inflation on their work.

Hall said: “We spend a lot of time talking to our charity clients and rising inflation and falling income are the factors they mentioned probably most often in the last 12 months, although the stock market has been on their mind recently too.”

The researchers were surprised to discover that three-quarters of respondents, despite admitting to concern about the twin pressures of rising inflation and falling income, had no plans to change their strategy, either at charity level or portfolio level.

Hall told civilsociety.co.uk that historically, when charities’ incomes were under threat, they would introduce more fixed interest bonds and cash into their portfolios.  But this may mean that lots of charities who are invested for the longer-term are not invested in assets that will protect them from inflation.

She said they ought to be looking at more inflation-proof assets classes like equities, infrastructure, and maybe commercial property. “They should be making sure their short-term position isn’t putting them in a situation where they can’t react over the longer term to the inflation pressures. Making sure they have got the right asset classes and the right proportion.

And even if inflation isn’t deemed a major problem for their own organisation, charities should consider its impact on their donations to other charities or beneficiaries, to ensure the value is maintained in real terms.

Hall said that in many cases this discussion would start at trustee level “but most charities I work with have either finance or investment committees and I imagine the detailed discussion around the real impact of inflation would take place on those committees”.

One in three respondents told Investec they expected to become more reliant on their cash reserves over the coming year.  According to the research, charities hold on average 18 per cent of their total assets in cash.