These Allocators Were Hard Hit by the Pandemic. They’re Finally Moving Forward.

Healthcare systems are evolving their portfolios, growing their teams, and looking to add assets like infrastructure.


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Healthcare system investment offices are just starting to recover from the pain the Covid-19 pandemic inflicted on hospitals and medical professionals.

And even as they’re still concerned about the daily pressures of providing cost-effective services, hospital system chief investment officers are focused on getting their portfolios to a mature place — and are growing optimistic about investments while they do it.

Goldman Sachs Asset Management surveyed 37 CIOs and investment professionals across healthcare and hospital systems that manage a combined $379 billion in assets. Individual systems included in the survey had assets under management that ranged from $483 million to $110 billion.

Operations — from managing liquidity and costs to paying staff — are the greatest concern for healthcare system investment offices; in fact, 68 percent of respondents said they were extremely or very concerned about how operational pressures would impact their work.

It’s for good reason. The pandemic drove down healthcare revenues, as the elective surgeries that typically rake in more money for hospital systems than other services were canceled. Meanwhile, emergency care needs were far higher. For some, the pressure was too much: Several investment offices closed or outsourced the management of their portfolios to third parties in the wake of the pandemic.

Healthcare systems are still contending with the fallout. “The operational pressures that came out of Covid are still living on,” Scott Konicki, managing director at GSAM, said.


Ongoing inflation isn’t helping them recover. “We’ve seen margins get compressed because of the higher cost of labor,” Konicki said. “Nonprofit healthcare systems operate on pretty razor thin margins” to begin with.

Healthcare system investment offices don’t just have to worry about their returns and spend rates. They also must think about the hospital system’s bond rating. A high bond rating allows hospitals to issue debt at lower interest rates and cost effectively raise funds for operations. Better investments and more liquidity (measured by metrics including days cash on hand) improve the bond rating.

One way to upgrade operations at the investment office is to increase the size of the team. That, according to Goldman’s survey, heavily depends on AUM. Once a healthcare system hits the $5 billion-in-assets mark, the number of internal staffers jumps. Funds with more than $5 billion in assets have a median of 8 employees. Those with under $5 billion are lucky to have 3 investment staffers.

“Size and scale really matter here,” Konicki said.

Despite operational challenges, healthcare systems are evolving and maturing in terms of how they manage investments.

Hospital system allocators are increasingly putting their defined benefit pension capital to work in fixed income. On average, DB plans have 54 percent of their assets allocated to fixed income, a ten percentage point increase year-over-year. This is the highest Goldman has seen since it began surveying health system asset owners in 2018, when the allocation was 37 percent.

“When we first did the survey in 2018, when we compared and contrasted long-term investment pools, there was no real discernible difference between the long-term investment portfolio and the pension,” Konicki said. “They were running the same asset allocation. What we’ve seen over the past six years is a real bifurcation.”

Within the portfolio more broadly, 59 percent of the responding hospital allocators expect U.S. equities to be one of their top performing asset classes in 2024. Meanwhile, 70 percent expect private real estate to be their worst-performing asset class.

These allocators are also optimistic about private credit, high yield debt, and cash and short-term securities. They are bearish, meanwhile on emerging market debt and equities, which are expected to be among the bottom three performers.

In the years to come, Konicki expects that hospital allocators will spend more time looking at adding infrastructure investments to their portfolios. On average, health systems have a one percent allocation to infrastructure, and 23 percent of survey respondents said they plan to increase that.

“Coupled with the evolution of infrastructure as an asset class and a focus on sustainable investing and climate in general, I think it will be interesting to see how that evolves moving forward,” Konicki said.