Healthcare entities are typically governed by members of a volunteer investment committee who are charged with fiduciary oversight of multiple, complex portfolios of varying horizons that are closely tied to the organization’s mission.
Yet it is difficult to maintain the discipline of managing a long-term portfolio as markets ebb and flow, investment fashions change, and investment committees turn over. The paradox of a long- term time horizon, while investment environments and organizations evolve, suggests the need for a critical tool in the governance toolbox in order to keep a clear focus and ensure successful outcomes. Crafted wisely, a set of agreed-upon investment beliefs can serve as a tool to enable investment decisions that help healthcare entities ensure capital is available to cover debt requirements, float operations, and/or fund capital spending needs now and in the future.
Members of investment committees who take the time and effort to articulate and document their core beliefs, along with their rationales and supporting evidence, can help sustain the organization long after these foundational decisions have been made. Despite inevitable market and committee changes, the organization will have a clear set of guiding principles to maintain confidence and influence investment decisions to ensure they remain on a steady course.
WHERE TO START? RECOGNIZING THE PROPER ROLE OF GOVERNANCE
An effective investment governance process aligns an institution’s ability and willingness to make investment decisions with the long-term needs of its portfolio(s). The governance process itself can be as difficult to establish as constructing a sophisticated investment portfolio, because every institution has unique capabilities, objectives, needs, and preferences. Ultimately, we believe institutions should strive for a governance process that achieves three goals:
- An organization that focuses on its long-term vision
- A governing board that supports the investment strategy
- An investment committee that implements an investment strategy based on sound investment beliefs
GET IN THE RIGHT MINDSET! THE PROCESS FOR DEVELOPING YOUR INVESTMENT BELIEFS DOCUMENT
- Control personal biases, especially if they are overly centered on mitigating short-term risks at the expense of any long-term rewards. It often helps to view risk-bearing capacity and return objectives through the eyes of the organization’s mission, needs, and longevity. This includes frequent discussions between the committee, management, and the consultant, as well as undertaking enterprise risk modeling efforts to get a more holistic view of the risks facing the organization.
- Rely on experts and successful investors for guidance. Investment beliefs should be a product of careful, thoughtful analysis and the collective experiences and insight from not only committee members, but also industry experts.
- Address six key questions to develop a set of coherent and consistent investment beliefs. (Fear not! It can be a mission affirming and enriching process.)
- What Does Investment Success Mean to You?
- What Is Your Investment Horizon?
- How Do You Define Risk, and How Much Are You Willing to Take?
- What Are Your Asset Class and Investment Implementation Preferences?
- To What Degree Should Responsible Investments Be Considered Within Your Portfolio?
- What Governance Structure and Processes Should Be in Place?
To learn more about how your healthcare organization should go about answering these six key questions, download the full article at our website.
This paper was authored by a team of Mercer and Pavilion thought leaders in the not-for-profit healthcare investing sector.