Jarvis says that nonprofit healthcare organizations' historical attachment to fixed income investments stems from a reliance on bonds to fund capital projects. "So the rating organizations like to see a large chunk of bonds and cash to maintain the bond rating," he says. "It has been something of a drag on returns and hasn't really protected them in the downturn."
In FY2008, for example, Commonfund reported investment losses averaging 21.2% for the nonprofit healthcare organizations that it tracks. . So that the big shift that we saw this year was healthcare organizations beginning to maybe take a closer look at adopting more closely this endowment model," he says.
With the shift away from fixed-income securities, investments in private capital and real estate have grown from 15% of the average healthcare portfolio in FY2009 to 21% in FY2011, Commonfund analyses show.
"Normally you don't see moves that big," Jarvis says. "That was funded by taking domestic equities down from 24% to 20% of the overall pool. So that is part of the big news here. Historically we have not seen these kinds of big moves in healthcare organization portfolios. Now we are beginning to see more strategic moves. They don't all occur at once but it looks as if healthcare organizations are reconsidering whether this endowment model works for them."