Health Care Systems Clamor for Co-Investments

Three-quarters of hospitals and health institutions surveyed by Cerulli Associates anticipated increasing their allocations to co-investment vehicles as they seek to shift more money into alternatives.

Illustration by II

Illustration by II

Count health care systems among the institutional investors increasing their exposures to alternative assets.

The investment professionals managing the pools of capital at hospitals and health care institutions plan to shift more assets into alternative investments, according to a new report from Cerulli Associates. The asset management research firm, which surveyed health care investors last year, said most health and hospital systems seek to increase their allocations to private equity, while noting there is “also strong interest in increasing or maintaining allocations to other alternatives, such as private debt, infrastructure, and real estate.”

For instance, 63 percent planned to increase the private equity investments in their organization’s board-designated pools that make long-term, unrestricted investments alongside their retirement plans and short-term funds. Forty-three percent intended to increase allocations to alternatives like private debt and infrastructure in their board-designated pools, while 22 percent said they would invest more in real estate.

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Overall, health care investors surveyed by Cerulli last year said they planned to devote 27 percent of their portfolios to alternatives over the next 24 months, alongside a 28 percent average allocation to U.S. fixed income and 20 percent average allocation to U.S. equity.


This rising interest in alternatives was further evidenced by the surveyed investors’ preferences regarding investment vehicles. Two-thirds planned to add more limited partnerships to their portfolios, while 75 percent were targeting more co-investments.

The high demand for co-investment opportunities might come as a surprise: health care organizations are “known to be resource-poor,” according to Cerulli. One CIO interviewed by Cerulli “complained about not being able to compete for additional, much-needed investment talent,” while a former hospital system employee said their previous employer, a health care system with billions of dollars under management, had an investment team of only three people.

According to Cerulli, 64 percent of health and hospital staff in their survey had neither added to their internal investment staff over the last two years nor planned to make hires in the next two years.

“Usually only larger institutions with more assets to devote to alternatives are able to source private co-investments or direct investments,” the report noted.