Photo by Markus Spiske on Unsplash

A sustainable approach to inves­t­ing a charity’s assets

When interest rates are low, investing a charity’s assets in a secure, sustainable manner poses a challenge. In general, small charities have to turn to external experts for this – but they need to watch out for conflicts of interest.

Active or passive investments

Today, even small invest­ments in passive funds can be widely diver­si­fied on a global scale and inves­ted in line with ESG (envi­ron­men­tal, social, gover­nance) crite­ria. Choose a low-cost passive core, and then only add active satel­li­tes if they add value and the board of trus­tees has suffi­ci­ent finan­cial expertise to evaluate them. Avoid active funds that deviate only slightly from the index. A fund with a mere 20 percent devia­tion would need to produce an annual surplus value of 5 percent on its active portion to compen­sate for fees on the entire fund volume being 1 percent higher.

Markus Hänggi is an execu­tive trus­tee for CHARISMA Stif­tung für nach­hal­tige Entwick­lung. The charity specia­li­ses in sustainable invest­ments and has deve­lo­ped an invest­ment concept for chari­ta­ble foun­da­ti­ons offe­red at cost price.

Bonds: a risk with no chance of returns at present

In the wake of dimi­nis­hing inte­rest rates, govern­ment bonds in Swiss francs gene­ra­ted average returns of 1.2 percent annu­ally over the last decade, thanks to capi­tal gains and initi­ally high coupons. With inte­rest rates curr­ently sitting at ‑0.6 percent, 10-year Swiss govern­ment bonds are worth six percent more than they will ever pay back. Zero-risk returns have turned into a risk of zero returns.

Shares: avoid clus­ter risks

A lot of Swiss compa­nies gene­rate the lion’s share of their turno­ver abroad. You can use their shares to ensure your invest­ments are globally diver­si­fied. As a Swiss charity, you can also reclaim Swiss with­hol­ding tax in full (tax with­held on over­seas shares quickly eats up 0.5 percent of your returns every year). The heavy­weights of Nestlé, Roche and Novar­tis are to be found in many funds.Avoid clus­ter risks.

Real estate

Swiss real estate is highly rated and the rental income is corre­spon­din­gly low. If possi­ble, only use equity to finance your real estate: the diffe­rence between rental income and mortgage inte­rest is at an all-time low.

Precious metals

Gold and silver have been able to main­tain their purcha­sing power for deca­des, but they have not increased it in real terms. They add a valuable dose of diver­sity in times of crisis, but mining them has a nega­tive impact on the environment.

Alter­na­tive investments

In the finan­cial sector, this term does not just refer to envi­ron­men­tal invest­ments. It also includes uncon­ven­tio­nal ones such as private equity, hedge funds and struc­tu­red products. Avoid them: they often come with high hidden costs and risks.

StiftungSchweiz is committed to enabling a modern philanthropy that unites and excites people and has maximum impact with minimal time and effort.

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