Health Nonprofits Post Double-Digit ROI

The average return on investments for 85 nonprofit healthcare organizations reviewed by the Commonfund Institute improved to 18.8% in Fiscal Year 2009. It was the best year for investments in nearly a decade.

The Commonfund Benchmarks Study of Healthcare Organizations results for FY2009 represent a dramatic improvement over average losses of -21.2% reported for FY2008.

The 2009 return was the highest in the eight years the study has been conducted, and came in the year following the poorest return of the eight studies. The 85 participating organizations represented $76.8 billion in investable assets and $26.8 billion in defined benefit plan assets as of Dec. 31, 2009.

Investable assets include endowment and foundation funds, funded depreciation, working capital and other separately treated assets.

For the previous three years, nonprofits in the study reported average annual returns on their investable assets of -0.2%, while for the past five years participants reported average annual returns of 3.5%.

The average 2009 return for study participants' defined benefit pension plans was 21.5%, compared with last year's return of -26.3%. Returns on defined benefits plan assets averaged -.8% for the previous three years and 3.9% for the previous five years.

"FY2009's results represented welcome and much-needed relief after the dismal FY2008," said John S. Griswold, executive director of the Wilton, CT-based Commonfund Institute. "Still, the fact remains that the average return of 18.8% was not enough to move trailing three-year returns into positive territory and the average 3.5% return for the five-year period is well short of covering healthcare organizations' spending and investment and costs, plus the added impact of inflation."

Based on asset class, international equities provided the strongest return, an average of 37.3% for study participants. Returns for other asset classes were: domestic equities, 31.2%; fixed income, 11.7%; alternative strategies, 17%; and short-term securities/cash, 1%.

The negative returns came from subcategories of the alternative strategies allocation. Private equity real estate fell -25.8%; venture capital, fell -10.5%; and private equity fell -7.2%.

Other alternative strategies allocations were very strong, however, as commodities and managed futures produced a 32% return, energy and natural resources returned 28.2%, and distressed debt returned 20.8%.

"If we go back to the study for FY2007¬ before the losses of FY2008 ¬trailing returns for three- and five-year periods were 9% and 11.1%, respectively. Returns at levels such as these are essential for the long-term health of the nonprofit healthcare community," Griswold said.

For the fifth consecutive year, participating nonprofit healthcare organizations reported higher average debt levels in 2009. Overall, debt rose to an average of $903 million from $681 million in FY08. The largest increase in dollars came from organizations with assets of more than $1 billion, where debt increased to an average of $2.6 billion from $2.2 billion a year ago. Forty-five percent of responding organizations confirmed that they had increased debt in FY09.

At the same time, 41% reported decreasing debt in FY09. Only 14% said they made no change in debt levels this year. When compared to other areas of the nonprofit sector, nonprofit healthcare organizations realized lower returns.

In addition, 173 independent and community foundations in the Commonfund study posted an average return of 20.9% for FY2009, and 66 charities in the study saw an average return of 21.5%.