The institutional investors hit hardest by the coronavirus pandemic are trying to make sure they benefit from the recovery.
Nearly three-quarters of health and hospital systems have either rebalanced back into risk assets like public equities, or have plans to do so, according to a recent survey by consulting firm NEPC.
This was especially the case for large funds — defined as hospitals with more than $2 billion under management — and health systems with higher credit ratings.
Speaking to Institutional Investor, NEPC consultants David Moore and Kevin Novak said reallocating back into the market is the right move for many hospital and health systems right now, provided that they have enough cash on hand to handle the rising costs associated with treating coronavirus patients.
“Our first recommendation is to plan for liquidity,” said Moore, who heads NEPC’s healthcare practice. “To the point where they feel comfortable with that — yes, now is the time to think about opportunities.”
Many health and hospital systems found themselves in a sudden liquidity crunch in March, as revenue streams from elective surgeries evaporated at the same time that markets plunged. Stock markets have since made a partial recovery, and nearly all institutions in the survey reported that they expect to receive funding related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Still, other financial pressures remain: Seventy-nine percent of healthcare organizations polled by NEPC reported that they have been burning through cash at a faster rate than usual, with half of the respondents reporting a daily burn rate increase of 11 percent or higher.
“Virtually everyone has had to take some degree of action,” Moore said.
NEPC’s poll found that 63 percent had accessed lines of credit, while 22 percent planned to tap credit lines. Cost-saving measures reported by respondents included furloughing hospital staff — which 61 percent had done or would do — and suspending or postponing retirement plan contributions. A quarter said they had already suspended retirement contributions, while 18 percent planned to do so.
“The results show that the larger systems that appear to have had more access to credit, or at least utilized credit to a greater degree, were able to limit those cost-cutting actions,” Novak said. “The smaller or lower-rated systems that didn’t access as much credit did have to take significant action.”
Still, even those under the most pressure to cut costs indicated that they were avoiding liquidating any long-term investments. Survey-wide, just 14 percent said they had liquidated investments, while 10 percent planned to.
“It’s such a challenging time for everyone, but especially hospitals being on the front lines,” Moore said. “They took actions very quickly and decisively to make sure they could keep care up.”