Key points
- The quality and breadth of investment service available to charity executives and trustees has increased over the years, matched by increased professionalism within the charity sector itself.
- However, the presence of relatively new, non-charity specialists makes the need for careful due diligence and scrutiny more critical than ever.
- With the number of listed companies shrinking, incorporating private market investments may add an extra dimension of diversity and returns to portfolios.
Of the 170,000 registered charities in the UK, just under 8,000 have assets of between £1m and £1bn. A further 15 to 20 have assets of over £1bn[1]. It should not be surprising that a cadre of professional accounting, law, investment and consultancies have emerged to help asset owners consider how these assets can be deployed and overseen.
The past 30 years have seen increased specialism and sophistication across the charity sector. Historically, charities were looked after by professionals focused on working with private clients and pension funds. In the early 1990s, several firms in each of the key service sectors carved out niche, charity-focussed practices. Across law, accountancy and investment, the sector saw the deployment of focused resources over the next 10 to 15 years, which drove significant consolidation as the leaders in each field proved their worth and promoted one another on merit.
Competition among the best in each field has definitively increased the quality and breadth of service available to charity executives and trustees. This has been matched by increased professionalism within the charity sector itself, through a combination of better and more relevant education, enhanced regulation, and a deeper, broader pool of talent.
However, success, professionalism and the size of the sector bring fresh challenges for trustees and executives to navigate. The availability of third-party service providers to charities is more widespread than ever before, in part because many of the clients like pension funds, which utilised their services previously, are now in substantial decline. While competition should be encouraged, the increasing presence of relatively new, non-charity specialists makes the need for careful due diligence and scrutiny more critical than ever.
Sarasin & Partners has been at the forefront of charity investment management for over 30 years. We have played a significant role in driving standards higher, training over 5,000 trustees and executives and investing heavily in our capabilities. Our team of 22 includes individuals with career-long charity and multi-asset investment experience. We review the investments of c.120 new charities every year and work with over 520 on an ongoing basis, considering how their circumstances might have changed against a backdrop of ever-evolving investment markets. We conduct a mix of ‘deep dive’ strategic reviews and regular refreshers of Investment Policy Statements. Helpfully, many of us at Sarasin see both sides of the equation: in our day jobs as investment managers and also in our extra-curricular roles as trustees and members of investment committees. This allows for balanced judgements and empathy with those we work with.
In summary, there are not many charity-focussed investment issues we haven’t had to find solutions for over the past 30 years. We thought we would therefore start 2026 by considering two of the greatest challenges those responsible for managing and overseeing charitable assets will be thinking about over the next 12 months.
Future returns and strategy
The Charity Commission’s guidance (CC14) on investment matters is clear and has not changed substantively in recent years. Trustees and executives need to “take advice from someone experienced in investment matters”, unless “you have a good reason for not doing this”[2]. For example, if you have sufficient expertise on your Investment Committee or Board of Trustees.
Some charities may choose to appoint a consultant to sit between the charity and their investment manager(s); indeed, we work with a multitude on this basis and for some organisations this may well be the most appropriate course of action. However, the best investment managers are set up to provide bespoke strategic advice and, critically, should be able to provide quantifiable track records of adding strategic (as opposed to tactical) value. While the execution of a strategy might well be subject to their particular style, investment managers are still able to provide effective and independent strategic guidance, provided they are able to invest across the full suite of asset classes and specialisms, outsourcing when appropriate.
Sarasin & Partners is relatively unusual in deploying a substantial amount of resource and intellectual capital in pursuit of the strategic elements of investment management, as we have for over two decades.
Within the Sarasin & Partners Compendium of Investment[3], we have analysed investment returns since 1900. The document collates over 125 years’ worth of data across all of the major, and the majority of the peripheral, asset classes and seeks to dissect and analyse these long-term return series for the benefit of charity trustees and executives. While the individual asset class returns are fascinating, from a charity perspective, the true value comes from considering how typical charity portfolios would actually have fared in the real world, investing in a combination of asset classes, with results dependent on a range of factors including timing, composition and the ability to evolve over time.
Our work on a classic UK ‘endowments’ approach over the past 125 years was pioneering when first published 20 years ago. The results have been widely accepted and we see the headline conclusions re-broadcast on a regular basis. While it is interesting to note that the real return has been about 4.3% p.a. gross of costs[4], this is not a figure that should be extrapolated into the future. This average holds true if one had invested over the entire 125 years and in quite a few of the intervening periods. However, a thorough analysis of the discrete five, seven and 10-year periods show much more varied outcomes. Without full access to the underlying data and analysis of discrete and rolling periods, mistakes and surprises will abound.
Our latest Compendium will be published in March 2026. On this occasion, it will be accompanied by a complementary publication later in the year. The two books will cover all manner of historic analysis and more importantly, future projections relevant for charity investors. However, the greatest value will always be provided directly to our clients. Our interpretation of the entire data set and ability to undertake bespoke analysis for individual client circumstances, together with our client’s ability to play with the data themselves, offers a robust platform to create appropriate investment strategies matched to individual circumstances and objectives.
2026 Conclusion: an appropriate investment strategy will likely remain the single biggest driver of returns over the period ahead and remains the backbone of any successful investment policy.
Markets structure: Active, passive and private markets
The vast majority of active fund managers have not delivered performance in line with commonly used indices in recent years. Although important, it is only one element a manager should be judged on. There has always been an element of cyclicality in the proportion of active managers beating indices: it might not feel it at the moment, but there have been periods when indices were relatively easy to beat! 2025 was something of a low point in this regard. There tends to be a strong correlation between high levels of concentration and the very largest companies outperforming, with the relative performance of active fund managers, who seemingly struggle to justify the lack of diversification when markets become skewed toward fewer stocks or sectors. Most active fund managers also base their decisions on fundamental research about future profits growth and valuations. Frustratingly, there have often been quite prolonged periods when markets are driven more by sentiment and momentum, which is a painful backdrop for those trying to pick high quality companies generating consistently strong profits growth.
While there will be a few active fund managers who buck the trend, the extreme headwinds of 2023, 2024 and 2025 have made things very uncomfortable for most of the active profession. If one simply looks at compound performance over the last one, three, five and 10 years, things look ugly. However, the problem with compound performance is the emphasis on the past few years. Is this really something one should extrapolate? Have good fund managers become bad, or are long-term investors reacting to short-term signals?
Despite the most common health warnings in presentations on investment performance making it clear that ‘past performance is not a reliable guide to future performance’, the winners of the past couple of years invariably scoop the pools. This results in some clients appointing managers at the top or end of a period of above average performance and failing to appoint or switching away from others at the bottom of theirs. Ours is an extraordinary industry where too many clients buy high and sell low and get caught in a cycle of disappointment. To try and counterbalance the natural tendency to appoint the current ‘best’ managers, the wisest investors will always analyse discrete (year-by-year) performance data and for periods of much longer than five years, seeking out genuinely long-term trends to put recent results in context. If you get this analysis right, you might just buy low, persevere during the inevitable periods of underperformance, and avoid disappointment.
Of course, in 2026, the conundrum of what to do with one’s equity exposure is not just about picking one active manager over another or moving to a passive approach. In order to replicate the shape and diversification that was easy to achieve 20 to 25 years’ ago in listed markets, one needs to be open to embracing private markets to a greater degree.
The number of listed companies has shrunk quite dramatically in virtually every region in recent decades. Not only have the biggest listed companies become larger, but the number of companies joining stock markets has reduced substantially. Private companies are staying unlisted for longer, supported by ever larger pools of private equity and debt.
While it might feel like doing nothing retains a comfortable ‘status quo’ and thus is the lowest risk way forward, in this instance, doing nothing actually results in ever lower levels of sector and stock diversification. Parallels can be drawn to those who, 15 to 20 years ago, failed to embrace investing more internationally. It is true that the move to invest more heavily in private markets is not helped by increased costs, and some hubris in terms of marketed performance data and loss of liquidity. However, costs are coming down, the net results justify ownership and illiquidity issues can be managed. We doubt past returns will be fully replicated over the period ahead, but embracing private equity (and private credit) is as much about ensuring sensible levels of diversification, as it is about generating higher returns.
2026 conclusion: top quartile results in the future will not be achieved by investors who only embrace the latest, best performing manager, asset class or style of implementation. Investment is a marathon, not a sprint. As John Maynard Keynes famously stated, “markets can remain irrational longer than you can remain solvent”. They are certainly testing the patience of most active investment managers and their clients today. However, we expect strong fundamentals to reassert themselves in due course, as they have done in the past: fastergrowing, high-quality companies will outperform lower quality, slower growing and unprofitable ones, be they listed or unlisted.
[1] https://register-of-charities.charitycommission.gov.uk/en/sectordata/
sector-overview
[2] https://en.wikipedia.org/wiki/September_2022_United_ Kingdom_mini-budget
[3] https://www.ft.com/content/efed5b1f-0a3c-4f94- 9d7c-64c57445f4ad
[4] Sarasin & Partners, 2025
Important information
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