Bibler, for her part, says investment strategies are changing. For example, she says, the top 10% of nonprofit hospital performers between 2002 and 2007 had as much as 30% of their portfolios in alternative investments, 50% in equities, and 20% in fixed income. Today, she says, the top 10% percent of performers have reduced their equities by about 10% and increased fixed income investments, but are still maintaining pretty heavy investments in alternative assets. While alternatives tend to be riskier, Bibler notes that they can also include hedge funds made up entirely of fixed income. "So it is a switch from your further-out-there types of investments to more fixed income typically."
As well, says Bibler, hospitals are structuring investments that can convert more quickly into cash. "One of the lessons we have learned over the past 12 months is that cash, readily available cash, is very important and some strategies, particularly your alternative strategies, tied up money for too long. So you are seeing a larger cash component particularly in the smaller hospitals."
Rating agencies zero in
Rating agencies also factor more heavily into investment portfolio strategy today. "There are more questions than ever on our investment portfolio and risk concentration," says Patricia O'Neil, associate vice president of treasury and pension at Rush University Medical Center. "After the Madoff headlines, we had a fair amount of questions relating to the number of investment firms that manage our funds," she adds.
"We are doing an enhanced analysis of liquidity and diving deeper into investment allocations more so than we have in the past," says Lisa Goldstein, senior vice president, team leader, at Moody's Investors Service in New York City. "We want to know that they have done an analysis of what their potential calls are on their liquidity and what their sources of liquidity may be. Then we would look to see if they have done an analysis as to what is their liquidity versus what is their wealth."
New standards for risk
Because investments fell so dramatically in the past year, hospitals are returning to a deeper understanding of the relationship between risk and return. "Who would ever think that you would have had to analyze risk at the third standard deviation of performance level, because that is what we have been through," says Jacobson.
Today, it is important to understand your risk tolerance at that level, and it is important to do an asset liability analysis and review debt structure and investments together. "You can't look at your investments in isolation," Jacobson says. "You have to look at them in the broad context of your entire organization."