NEPC’s annual Healthcare Operating Funds Survey examines healthcare organizations’ returns, risk appetite, and asset allocation strategies. The 61 respondents represent healthcare organizations with AUM ranging from under $250 million to over $2 billion.

The results show:

  • The COVID-19-induced sell-off materially impacted portfolios. Following Q1’s drawdown, the median return of respondents was -5.4% on a trailing one-year basis. The brief negative return environment also impacted longer-term investment results as the median five-year return as of March 31, 2020 was just +2.2%. Lower-rated systems appear to have better protected capital during this sell-off in comparison to higher-rated systems (AA), likely due to their larger allocation to fixed income.
  • Portfolio risk declined following Q1’s volatility. This echoes the findings of 2019’s Healthcare Operating Funds Survey, which found that respondents reduced exposure to alternative investments and increased exposure to fixed income on the heels of 2018’s negative returns.
  • However, larger (more than $1 billion AUM) and higher-rated healthcare systems appear to have increased their risk profile. These systems increased equity exposure over 2019, potentially signaling relative strength in their core business. NEPC’s May healthcare survey may reveal why. The earlier survey explored the role of liquidity in blunting COVID-19’s operational impacts. Respondents with sufficient liquidity – through operating pools or credit facilities – were able to limit actions like furloughs and postponing retirement contributions.
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