A line of flood victims wait for food in Haiti, September 2008.

A line of flood victims wait for food in Haiti, September 2008.

A substantial share portfolio is not an asset you might typically link with a charitable foreign aid organisation — but quite a number of these not-for-profit groups do in fact invest in the stock market. And the money they sink into stocks is money collected from public donations.

The rationale is simple enough. Any returns on investments help to fund extra charitable works. But what happens when things turn sour?
Oxfam Australia, for instance, lost $1 million is shares it sold on the market last year, and the value of its remaining portfolio dropped by $2.5 million. That’s a lot of charity dollars down the gurgler. The pinch of the global financial crisis was to blame, Oxfam states in its recent annual report. Yet despite the losses, ‘‘our investment portfolio out performed the financial market benchmarks against which it is measured.’’ Well, at least that’s encouraging.
Foreign aid organisations and activist groups are important actors in global politics, often influencing government policy or in some cases assuming roles expected to be normally provided by the state. Health care and sanitation are only the most obvious examples. And while many aid groups benefit from grants out of the public purse, private donations make up the bulk of their funds, as shown on this table from the Australian Council for International Development.
Does the average public donor pore over the copious pages of reports produced by these charity organisations and understand where their money goes? Fair to say, probably not. People give money to charity with the expectation that it will help those in need, and don’t give much thought as to how that actually occurs. The aid groups are not up to anything dodgy by investing in shares. Indeed, Oxfam was awarded the 2008 Price Waterhouse Coopers gong for transparency in its financial reporting and operations.
But the practice of charities playing the stock market poses interesting questions about societal expectations. Rather than being the shoe-string, volunteer-based communes that might be generally assumed, big aid organisations have evolved, becoming far more commercial in their operations. Just as in the business world, buzz words such as ‘‘efficiency’’ and ‘‘effectiveness’’ are rampant in the aid sector. Outsourcing is another vogue, and that raises an entirely uncomfortable term for charities — profit.
I reported today on the deal between a private fundraising company, Cornucopia Consulting, and many of Australia’s largest aid organisations. Cornucopia puts paid face-to-face marketers on the streets, dressed in the garb of the aid organisation, to solicit ongoing donations from the public. Amnesty International, Oxfam, Medecins Sans Frontieres Australia are all on the client list.
These marketers — sometimes derided as ‘‘charity muggers’’ — don’t rattle tins for spare change. They are chasing credit card or bank account numbers to set up monthly direct debits between the donor and the aid group.
But here’s the rub. Cornucopia takes a cut, up to 95 per cent of the first year donation provided the donor stays on for longer than 100 days.
The aid groups say that leaves the fee at around 24 per cent of an average four year relationship. Every extra year that the donor stays on, the fee drops as a proportion of the total.
OK, got that? The complex arrangement is disclosed in fine print on the sign-up form, but I doubt many people would look for it or expect this kind of commercial deal would lie at the heart of a donation. And if the charity marketer brought the costs directly to the attention of the potential donor — admitting that most of the first year of their donation will line the pockets of a private company — obtaining sign-ups would be even harder.
When I rang around to the various aid organisations that engage Cornucopia or other similar agencies, they were open to talking about the deal. So was Cornucopia. Nothing is free in this world, and as several of the aid group representatives put it to me, it costs a dollar (or less) to raise a dollar. The bigger the aid organisation, the more expensive its operations.
Nothing is buried here in these charity-commercial arrangements. But they hardly sit in plain sight either.