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Profile: DSP's charity boss on the sector's approaching crunch

Profile: DSP's charity boss on the sector's approaching crunch

Dalton Strategic Partnership’s head of charities Richard Nunneley is helping the sector overcome what he describes as the biggest crunch in 50 years as it desperately seeks to raise more funds in a low return environment.

Nunneley, who has acted as fund manager, adviser, chairman and trustee to charities for more than two decades, is facing greater client expectations at a time of weakening revenue streams and overvalued income-producing assets.

After starting out as an actuary and investment analyst between 1965 and 1973, Nunneley left the City to become a regular soldier in the Black Watch, an infantry battalion of the Royal Regiment of Scotland.

Some 19 years later, having been decorated for active service and commanding a battle group, he returned to the City wanting to give something back to society, he says. On leaving the army in 1992, Nunneley joined Mercury Asset Management (MAM) and the world of charities.

‘At MAM, it was made very clear that it was expected of us to spend our own time and money on charitable purposes,’ he says. ‘My former boss, Richard Marriott, told me that as a rule of thumb, approximately 10% of time and money was spent looking after people within charities. We had a very thorough charities team but if you were at a certain level, it was thought very positive for the firm that you’d work on charitable purposes.’


The philanthropic arm has been integrated with Dalton Strategic Partnership’s (DSP) wealth management business since the firm was launched in 2002 by Andrew Dalton and Magnus Spence, who worked alongside Nunneley at MAM.

‘It was the sensible thing to do because if you do a good job for the charity, the trustees can turn around and ask you to look after their own money,’ Nunneley said.

As a firm, MAM had something in common with Nunneley’s previous employers Barclays de Zoete Wedd (BZW) – Barclays’ first investment banking arm – and Cazenove.

‘These firms shared the “service not self” motto. All three firms had a history of ensuring that the senior employees had given money to charity,’ Nunneley says. ‘It’s very much cultural. BZW had Quaker origins, Mercury was of Jewish-Scottish origins, and Cazenove was Huguenot Church of England Protestant.

‘My own family has chunks of Quakerdom in it, the military is all about looking after others – it’s a cultural thing I have been brought up with,’ he adds. ‘When people ask me why it is important to set up a charity business I can only answer “because it is a good model”. It’s what we should all be doing.’

At DSP, Nunneley looks after six charities, ‘not all particularly well known ones because trustees tend to play safe’, and a family foundation, which under English rule is not strictly a charity but needs to run its money like one.


The charity business, which runs segregated portfolios for charities and foundations, manages around $20 million (£11.75 million) of their money. This is less than 10% of DSP’s wealth management business, which currently manages $300 million on the behalf of private clients.

It may be a smaller part of the business but it faces no fewer challenges at a time when there is an increasing dependence on the third sector to plug gaps in government spending.

This is putting pressure on charities to generate more income, which in the current low return environment is increasingly difficult. It is this, in Nunneley’s mind, which could lead a ‘large number of small charities to falter’.

He takes the example of the military sector, where a high-water mark of giving to military charities has passed because the UK is pulling out of Afghanistan, and the public is starting to look and give elsewhere.

‘Conversely, it’s a time when demand is greater,’ he stresses. ‘The real crunch is coming from the state having cut back on the overall social spending and hoping that charities will fill the void.

‘People want more and more income, but where do you find it? Today, just about everything is fairly valued and there is a very good reason for the rest to be undervalued [emerging market equities] as they don’t pay income broadly, so you wouldn’t be rushing into those.


‘Overvalued is anything called a bond, but of course, charities need that for income and broadly, stability.’

This has also meant Nunneley has had to be more realistic when taking clients and charities under his wing.

‘If we had an annualised total return on our portfolio of 3.5%, that could be do-able over time, but it’s when people start asking for 4.5% upwards that we have to turn people away. I get teased for doing that, but it’s better to be honest.

‘You have to be prepared to say to somebody: “Listen, we’re going to disappoint you, and I don’t think what you are seeking is something we are comfortable with”.’

Typically, he says he has turned people away when they wanted everything to go into impact investing without realising it was not without risk.

‘The fundamental point is to ask people what their understanding and tolerance of risk is. I have had people say they don’t mind losing everything. We won’t accept them as clients.’

As part of this commitment, Nunneley has variously acted as chairman of the Officers’ Association, head of the Royal Engineers Officers’ Widows Society, trustee of the Burma Star Association, vice president of Combat Stress and a member of the London School of Economics investments sub-committee.


Additionally, he spent eight years as de facto MD of the Armed Forces Common Investment fund, which was designed to provide armed forces charities with a professional investment management and administration service.

‘But decades of service also mean I have seen all kinds of issues. The Armed Forces Common Investment fund, for example, was ground-breaking. We spent a hell of a lot of time explaining to the members of the charity commission why it was a good concept, and getting them to understand why and how fund management works,’ Nunneley says.

Since launch in September 2002, the £252 million diversified multi-asset portfolio has returned 147%, outperforming the benchmark, which is up 140% over the same period.

In 2011, Nunneley became chairman of Impact Investment Partners (IIP), the only UK regulated impact investment management company, which has a collaborative relationship with DSP.

‘More and more wealthy individuals with their own foundations and an appreciable number of charities want an element of their investments to be invested in social impact investments, and to a degree, we’re seen as the “go-to people” on impact investing,’ he says.

‘We collaborate with a number of family offices; it’s like sub-contracting emerging markets investments to somebody else if you’re not an expert. Typically, the young generation or anybody under 40, is expressing a strong desire for social impact investing.’


Pure Dalton clients have between 2% or 3% invested in IIP on average, he adds.

In contrast to the US, where comparable foundations are running at about 15% asset allocation in impact investing, the UK only has around 1.2% of total asset allocation invested in such vehicles. In the US, sustainable investments and social impact has risen from £12 billion in 1995 to £640 billion in 2012, while Bestinvest believes just £8.6 billion is invested in green and SRI funds in the UK.

‘It’s tiny here and that is the biggest challenge we have got,’ Nunneley says.

In DSP’s typical balanced segregated charity mandate, 15% is invested in UK equities, 20% in global equities, 10% is allocated to emerging markets and 5.5% is held in cash.

Additionally, 16% is allocated to hedge fund strategies and fixed income, and the portfolio has a 5% exposure to absolute return and between 10% and 12.5% in inflation hedging strategies.

Nunneley stresses that fund managers running charity assets need to work on a case-by-case basis. While the Guide Dogs for the Blind Association is looking at four year of cash reserves, other charities have cashflow issues and are reliant on people continuing to donate, he says.


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