Hospitals increasingly are turning to professional money managers and investment consultants for help in coping with rising operating costs, reduced income and lower returns on investible assets.
During 1995, hospitals expect to place more than $4 billion under external management. Those with less than half of their assets managed externally plan to increase the amount placed with outside managers by 50% during 1995.
A pool of $225 billion in hospital retirement funds, endowments and foundations and hospital reserves is "up for grabs" for money managers and consultants, according to a 1994 survey of U.S. hospitals by Christine England Associates on behalf of the Investment Management Institute, Greenwich, Conn., a financial education group.
Hospitals using at least one investment consultant and three or more money managers earn sharply higher returns than institutions making only minimal use of financial advisers. Hospitals using five or more money managers reported investment returns averaging 8.2% on all funds, compared with 7.7% for hospitals using fewer than three managers. In addition, health care institutions hiring a single consultant reported, on average, 8.4% annual returns, compared with 6.1% in hospitals that do not use consultants.
The survey found the hospital market, the third largest pool of investible financial assets after corporate and public sector funds, is largely untapped. No single money management or consulting firm serves more than 8% of the health care institutions surveyed. A total of 170 hospitals, about 42% of institutions surveyed, do not use an external consultant.
Hospitals in the survey have average financial assets of $170 million and $554,000 in annual fees to external money managers. While 96% of retirement plan assets are managed externally, only 75% of corporate assets are externally managed by professional money managers.
Hospitals remain somewhat conservative, investing corporate funds mainly in short-term fixed-income securities. Most executives said they would never consider real estate, managed futures or hedge funds. Only the largest hospitals invest in or plan to invest in the asset classes.
