Hartford HealthCare, Hartford, Conn., returned a net 15.9% on its investments in the 12 months and an annualized net 9.4% for the five years ended June 30, said David Holmgren, chief investment officer.
The returns were above the respective custom benchmark returns of 10.2% and 7.4%, and were the result of Hartford HealthCare's focus on active investments, Mr. Holmgren said.
"Obviously, active management works," Mr. Holmgren said. Hartford HealthCare had $3 billion in pension and endowment assets as of June 30.
Hartford HealthCare's growth assets allocation — at a target 57% of total assets with 45% in public equities and 12% in private equity — returned 20.7% for the 12 months ended June 30 vs. the 18.8% return of the benchmark Morgan Stanley (MS) Capital International All-Country World index. Mr. Holmgren said the reasons behind the success of the portfolio were a slight style tilt toward growth, a move toward international equity from domestic, a shift to smaller capitalization stocks from large cap, and "overall, a trust in active management." The entire growth portfolio, run by 12 money managers, is actively managed, he said.
Going forward, Mr. Holmgren said, the portfolio will move closer to its private equity/public equity targets; as of June 30, the plan was overweight public equity by three percentage points.
The target 30% risk-reduction allocation, evenly split between opportunistic fixed income and hedge funds along with 4% in cash, returned 7.1% vs. the 8% custom benchmark. Opportunistic fixed income returned 8.1% and hedge funds, 8.2%
Moves toward private credit from high yield and bank loans fueled the risk-reduction returns, he said, adding future changes would involve a look to global investments.
"Our entire fund is global as the opportunity set," Mr. Holmgren said. "In some cases, that has allowed us to hide from the crowded trades like in private debt and we've been able to source a dedicated Asian private credit fund as well as a dedicated European private credit fund."
Hartford HealthCare's economic hedge allocation, with a 13% target, returned 11.5% vs. the custom benchmark's -0.6% return. The allocation's five percentage points in natural resources and infrastructure returned 15.4% vs. the custom benchmark's -2.6%, with the outperformance the result of holding less than a percentage point of the commodity-based portfolio in oil, Mr. Holmgren said. "It was a bad year for oil," he said. "Our exposure relates to our determination to not take that volatility swing in commodity prices, especially oils," he said. "We're underweight oils and instead are buying more revenue generating asset-backed investments."
Among the portfolio's other investments, Mr. Holmgren said, "recent allocations to ship financing, aircraft leasing, securities litigation financing, global farming, power distribution and value-added real estate are consistent with our diversified income substitution play inside of inflation protection, given our continued view of a global low-yielding environment. … In 2018, we will remain tilted toward commodities given their positive valuation at the modest expense of real estate as a slight hedge against a potential rate rise."