SEI's holistic analysis helps this healthcare system maintain strategic focus during changing and unpredictable circumstances.
An enterprise risk management approach for a nonprofit healthcare system
Our client is a Midwest not-for-profit healthcare system with over 30 owned or affiliated hospitals and approximately $2.7 billion in annual operating revenues. The system has greater than $1.6 billion in investable assets across various portfolios, including cash and short-term operating reserves; board designated assets; foundation assets; self-insurance reserves; and defined benefit pension plan assets.
The healthcare system faced increasing organizational complexity as a result of recent hospital acquisitions and operating pressures related to the COVID-19 pandemic and an evolving operating environment. In planning for continued growth, the system needed to better understand the impact its various investment portfolios would have on the system’s key financial metrics and operational performance.
SEI provided a fully-customized investment outsourcing solution for the client’s broad set of investment portfolios. It was important to take a holistic view across their different asset pools in order to better manage risks, grow assets and add value.
As a result of the uncertainty created by the COVID-19 pandemic, the system was looking to measure the impact of various portfolio changes on its future health. With SEI having discretion over manager hiring, firing and monitoring, the client’s management team and board members could continue to focus additional time and energy on operational strategy development and execution, rather than shift focus to managing the investments. The client was also able to take advantage of an industry-leading multi-manager investment program that provides cost-effective access to investment managers and asset classes, increased diversification and daily liquidity.
SEI’s outsourced fiduciary management solution is enterprise-focused and works as an extension of a healthcare system’s team. Using this framework as foundation, we performed a holistic analysis of the investment program in light of the changing and unpredictable circumstances. For all portfolio recommendations, we considered a variety of factors, including:
SEI conducted an asset allocation study for the client to show projected outcomes for their total unrestricted cash and investments and the potential impact of the asset allocation on the system’s key financial metrics. The main objectives of the study were:
Data incorporated into the analysis included:
The asset allocation study revealed that under the current market conditions, increasing risk in the portfolio would be rewarded less than it has been historically. As a result, the board decided to de-risk its designated and foundation pools. This decision was driven largely by the need to find an efficient balance between risk and return, and to choose a strategy that would continue to provide the best tradeoff between risk and return in various market scenarios. The adjustments to the portfolio indicated that the adjusted aggregate risk profile of the portfolios is in line with the client’s risk appetite, the projected growth in the global investment portfolio is expected to maintain key financial metrics, and expected returns on the investment portfolio are projected to be sufficient to support strategic requirements. Assuming median or expected investment returns, the dollar investment return on the global portfolio would be sufficient to grow the balance sheet over the forecasted period.
Relying on an enterprise risk management framework, the system has the flexibility to work with SEI to evaluate changes to the portfolio in real time under various market scenarios. This analysis serves as a major input to the decision-making process, allowing the board to operate in a nimble and efficient manner, particularly in the face of continued uncertainty.
The dynamics of many healthcare organizations during the COVID-19 pandemic — such as depressed revenues, increased expenses, market volatility and the uncertainty of how and when the pandemic will end — require a comprehensive, proactive and ongoing review of broader enterprise risks and an understanding of the impact that the investment portfolios may have on overall financial and operational performance. SEI takes a holistic, enterprise risk management view of healthcare investment portfolios, enabling healthcare systems to be better prepared for future events and make more educated decisions regarding risks taken in pursuit of value.
This case study describes the attributes of a specific client that SEI has determined is comparable based on objective criteria, including organizational goals, asset size and industry sector. Any discussion of specific asset allocations is intended to help clients understand SEI’s customized investment approach, and should not be regarded as a recommendation. Information concerning SEI’s recommendations over the last year is available upon request.
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