October 27, 2009

Dippin’ endowments

By Kelley Luckstein

The nation's economic and financial market woes have depleted healthcare endowments and raised questions about how best to manage portfolio risk.


Equities markets have rebounded since lows that followed the sharp declines in the final months of 2008 and earlier this year, but gains have not erased concerns raised by recent volatility about how well investment strategies protect assets and liquidity, say hospital and health system investment insiders…


Not everyone found their investment strategy shaken by last year's upheaval. The Mayo Clinic's endowment, which fell 18% in 2008 has rebounded by 8.9% through September, says Harry Hoffman, chief investment officer and treasurer for the Rochester, Minn.-based system, which owns 20 hospitals and manages another two in five states. “We seem to have come back from the abyss,” Hoffman says, though he says that he remains cautious.

Mayo adjusted its portfolio “modestly” to preserve the system's liquidity. Its $1.4 billion endowment as of June 30 included 31% public equities; 18% bonds; 24% in hedge funds; and 27% in private investments such as real estate, natural resources and private equity.

Hoffman says the system sought to preserve access to its cash by slowing the pace of investment in less-liquid private funds and redeeming some hedge funds and equity investments in fall 2008. Mayo returned cash to equities earlier this year “as it became clear that the world wasn't going to end,” but has retreated some as markets have rapidly surged upward, a sign of volatility, he says.

Mayo has not changed its overall strategy for a highly diversified portfolio. He says the system continues to see hedge funds and private investments as strong vehicles where investors have an opportunity to exploit inefficiency for higher returns and a more diversified portfolio. Mayo works with 125 fund managers to oversee its investments.

The system's endowment, which totaled $1.6 billion as of the end of 2007, should rebound fully to that peak within six months to one year should donations and positive returns continue, he says. As of Sept. 30, the endowment totaled $1.5 billion, he says.

Donors continue to give to the health system, which has not trimmed its fundraising budget or staff of 215, says James Lyddy, chairman of Mayo's development department. Mayo Clinic reached its $1.25 billion fundraising goal six months ahead of its five-year schedule, though some larger benefactors have extended payment schedules. To date, the effort has helped fund 51 new faculty positions.


Modern Healthcare, by Melanie Evans, 10/26/2009

Tags: endowments, Finanical, investments

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