September 30, 2004 | Read Time: 2 minutes
Investment assets at the nation’s largest nonprofit hospitals and medical centers rose an average of 14.1 percent last year, reversing a three-year downturn, according to a report from the Commonfund Institute.
The increase occurred in part because the 204 health-care organizations surveyed — representing $129-billion in assets — diversified their portfolios, putting an increasing share of their money in alternative investments such as hedge funds, venture capital, and real-estate investment trusts.
The hospitals in the survey held about 67 percent of their assets in alternative investments last year, the report said. That is a significant increase from 2002, when hospitals reported holding about 9 percent of their assets in such investments. Nearly one in three of the hospitals surveyed in this year’s study said they planned to increase their investments in alternative funds in 2004.
Investments Cause Concern
The growth of alternative-fund investments has caused concern among some of the people who follow the investment practices of health-care organizations, said John S. Griswold, executive director of the Commonfund Institute, the research arm of Commonfund, a company in Wilton, Conn., that manages approximately $30-billion in assets for more than 1,500 educational institutions, foundations, and health-care and other nonprofit organizations. Hedge funds and other alternative investments are considered by some financial experts to be more risky than other forms of investing, in part because they are not regulated by the Securities and Exchange Commission as broadly as are mutual funds and other investments.
“Many health organizations don’t have the experienced business staff to monitor alternative investments,” Mr. Griswold said. “They need to be aware of the need for sufficient oversight in these areas.”
Diversifying their portfolios, however, is helping many hospital systems sidestep the budget problems they face, Mr. Griswold said. “We think hospitals really should be focusing to the extent that they can on making their long-term investments more efficient in terms of producing more income for these institutions,” he said. “They’re more likely to make higher returns on their investment if they take more risk. They just have to learn to manage that risk.”
Nonprofit groups can obtain free copies of “2004 Commonfund Benchmarks Study Healthcare Report” by contacting Mr. Griswold at (203) 563-5000, or by e-mail at jgriswol@cfund.org.
