The Wellcome Trust, the UK’s largest charity managing nearly £40 billion, has accumulated a cash reserve exceeding £3.7 billion. This strategic move aims to protect its substantial endowments from potential financial corrections and to capitalise on undervalued stock market opportunities that may arise during a downturn.
In its annual report, the medical charity disclosed adjustments to its portfolio, enabling it to “step up into any market dislocations” anticipated in the coming months. The report noted that “public equity markets look at least fully priced on any metric, and expensive in a longer-term historical context,” particularly in the USA, although other markets have also experienced valuation increases.
The outlook for real returns on listed equities over the next five to ten years is expected to be more subdued than the gains seen since the global financial crisis. The report acknowledges that while this trend will eventually reverse, predicting the timing of such an inflection point remains impossible.
Currently, cash constitutes approximately 8.9% of the trust’s assets, a significant increase from the historical average of three to five percent. This decision contrasts with the prevailing risk-on sentiment among asset managers that has driven major global stock markets to record highs recently. For instance, the FTSE 100 surpassed 10,000 points for the first time, and the S&P 500 reached a new peak despite market volatility.
A survey by Bank of America indicated that average cash holdings among fund managers have dropped to a historic low of 3.3%, even as the AI-driven stock market surge shows signs of slowing. Meanwhile, Berkshire Hathaway, a renowned investment firm in which Wellcome Trust invests, has also amassed a $377.5 billion cash reserve, citing concerns over high valuations and better yields from rising interest rates.
Fabian Thehos, co-chief investment officer at the Wellcome Trust, commented on the large cash reserves built up by Berkshire Hathaway’s former manager, Warren Buffet: “We’re certainly in good company in this regard. Our natural inclination probably is to be slightly contrarian.”
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