Australian religious entities, charities look to outsource investments | Fund Managers

More religious institutions and charities are looking for investment advice in Australia, creating new opportunities for financial advisors and consultants.

“We are seeing an increase in the demand for institutional investment advice. Many within the charity sector can now receive advice that has previously been accessible to only the very largest investors such as superannuation and sovereign wealth funds,” Michael Maher, senior consultant and head of not for profits (NFP) at JANA, told AsianInvestor.

The Australian investment consultant recently expanded its client base by onboarding Uniting Financial Services (UFS), a not-for-profit organisation within the financial services of the Uniting Church in New South Wales and the Australian Capital Territory.

Michael Maher
JANA Investment Advisers

JANA will provide advisory services including strategic advice, manager research, portfolio construction advice to UFS.

With the addition of UFS, the investment consultant advises over 35 non-profits including foundations, endowments, and government clients—welcoming four non-profit clients in the last 12 months alone.

“The demand for advice is likely linked to the growth of the philanthropic sector. Despite the challenges of the pandemic, the Australian Charities and Not-for-Profits Commission reported last year that donations and assets within the sector have been growing at just under 10%,” said Maher.

The NFP sector also remains a major employer in the economy as well, covering around 10.5% of the working population, he said.

“This growth is also expected to continue given the federal government’s aim of doubling philanthropy by 2030.”

MANDATE WITH A MISSION

Within charitable organisations such as UFS, Maher has observed many investors are increasingly asking themselves whether there are ways of making money that are more aligned with their overarching mission or at least not counter to their mission. 

“Investors don’t necessarily look at their investments through a two-dimensional, risk-return framework. Increasingly, we are helping clients think about their investments through a three-dimensional framework of risk-return-impact and shape their corpus in a way that balances these three competing factors,” he said.

What is evident in is that there is no single approach that caters to all or a majority of organisations, said Maher.

“The first thing that we try to understand is the mission of the organisation, and specifically, what positive change they are trying to make happen. We then try to understand whether a decision to allocate capital to certain types of investments could be seen to contravene their mission.”

INCREASED SOPHISTICATION

Charitable organisations are also growing increasingly sophisticated in their investments.

“Many charities understand the importance of financial buffers and investment income. The growth of the sector and the focus on investments would have no doubt increased the need for increased oversight and sophistication in the management of funds,” he said.

There has also been the general trend of democratisation within financial services over the past decade, enabling charities to access previously inaccessible financial services and best practice approaches.

More non-profit entities are hoping to create sophisticated portfolios with increased usage of illiquid assets through private equity, private debt, property and infrastructure, said Maher.

TRADE-OFFS

Financial performance and social values are not mutually exclusive, but there are always trade-offs, although it may not appear obvious what those tradeoffs are, according to Maher.

“That’s because ‘trade-offs’ are interpreted or valued differently from organisation to organisation in the charity sector.”

For many organisations, not compromising on their values or aligning the investments with their values through approaches like impact investing, generally means the willingness to invest in private markets where the best impact opportunities are.

“For an organisation that has no or minimal illiquidity exposure, impact investing can be a new challenge,” said Maher.

However, the whole premise of “endowment style investing” is based on the willingness to assume illiquidity risk for long-term benefit and developing a spending policy that can create a sustainable income stream over time to meet the needs of the present while preserving purchasing power for future generations, he explained.

“There are several trends that now better enable investors to use the classical endowment approach, that has the potential to better equip them to generate sustainable revenue streams and better align the investments to their mission.”