Nonprofit Hospitals Urged to Diversify Endowments
Nonprofit hospitals should diversify their investment portfolios and reduce heavy bond and cash allocations while exploring alternative investments such as equities, a Commonfund Institute report recommends.
William F. Jarvis, managing director of the Commonfund Institute, the nonprofit research arm of Commonfund, investment advisors to nonprofit institutions, says nonprofit hospitals need to adopt the Endowment Model of investment management used by many universities that relies upon "a highly diversified portfolio of assets with a higher than usual tolerance for illiquid assets."
Jarvis, the author of the study, (PDF) notes that during the 2008-09 economic collapse, healthcare organizations' portfolios suffered losses that were nearly as severe as other nonprofits, but did not recover as quickly.
He says heavy allocations to fixed income investments and cash, which totaled nearly 40% of the average nonprofit healthcare organization's portfolio, were due largely to rating agency requirements that tie favorable bond ratings to portfolio liquidity.
Because of that pressure, Jarvis says that many nonprofit hospitals remain concerned that any reallocation of assets will hurt their credit ratings. "Historically the nonprofit healthcare organizations have taken their investable assets and put them into pools that are not as diversified as other types of nonprofits," he said.