A personal finance columnist for the NZ Herald

Inside Money: Donors take nothing for granted

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File Photo / APN
File Photo / APN

While John Banks doesn't appear to have had any trouble rustling up the odd $50,000 donation it's a little tougher out there for less well-known causes.

A group I am involved with, for instance, has struggled to squeeze money out of the usual charitable sources over the last couple of years. Partly that may be due to increasing competition for funds amongst the good causes but there's also an undeniable GFC hangover that has restrained the generosity of charities.

Like the majority of investment funds, charities were hit hard by the market slump with many seeing their capital eroded. And despite the, admittedly fragile, investment market recovery, charities are taking nothing for granted.

A case in point is Australasia's single biggest charitable fund, the ASB Community Trust. In its most recent annual report the ASB Trust, which rejected our group's application, revealed a 10.3 per cent investment return (or $105.6 million) in the year to March 31, 2011 compared to a loss of 18 per cent ($200 million) a couple of years prior to that.

"While a rapid recovery is good news, this see- saw effect - up one year, down the next - has become problematic and Trustees are aware that it makes it difficult for community

organisations to plan their futures," the ASB Trust report says. "As a result, Trustees have found a way to smooth out the bumps and ensure that one-off events do not have an instant negative impact on grants."

The ASB solution to market volatility is to base its donation budgets "on a percentage of the five-year moving average value of the Trust Fund" rather than on a yearly basis.

"... which means one bad year may have little effect on the next year's grants," the ASB Trust report says. "A series of bad years could slowly erode the size of the grants budget, while good performances may gradually increase the grants budget."

As well, the $1.1 billion ASB Trust has reorganised its investment portfolio after hiring US-based consultants Cambridge Associates in 2010.

ASB Trust assets are now classed in four "buckets": growth; diversified; inflation-proofing, and; deflation-proofing.

In a practical sense this has resulted in the ASB Trust investing $166 million into hedge funds and almost $57 million into emerging market equity funds over the 2010/11 financial year, mainly at the expense of New Zealand equities, which went from $106 million to zero over the same period.

And while not completely transparent (the underlying managers are not named) this big switch in ASB Trust investment strategy is most unlikely to be unduly influenced by any personal considerations of the Trustees.

As per the ASB Trust conflict of interest guidelines "... any Trustee who has an interest in any matter before the Trust must record that interest in the Trust's Register of interests".

"That Trustee is not counted in the quorum present at the meeting," the ABB Trust rules say. "They may not vote in respect of the matter they have an interest in and must absent themselves from any discussion or consideration of it."

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A personal finance columnist for the NZ Herald

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. He is the editor of industry website Investment News. David has edited magazines and websites for the financial advice, investment and superannuation industries.

Read more by David Chaplin

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