CLEVELAND - Cleveland Clinic Foundation's $500 million long-term investment pool may eliminate its 20% allocation to fixed income and increase equity exposure to 85% to 95% of assets.
The pool currently has 73% of its assets in equities.
Kevin Roberts, treasurer for the clinic, says the seven-member investment committee overseeing the investment pool is examining whether any type of fixed-income exposure is beneficial.
The idea is still in the early, conceptual stages, Mr. Roberts said.
(The long-term investment pool contains the health care organization's endowment and funded depreciation accounts.)
In looking at investing for the long term, "long-term bonds tend to be inferior return-producing assets," Mr. Roberts said. He made his remarks during a recent teleconference for health-care finance experts hosted by Morgan Stanley Asset Management and Miller Anderson & Sherrerd.
The Cleveland Clinic includes a 700-physician group practice and various hospitals and outpatient care facilities. In October, it acquired Meridia Health System, Mayfield Village, Ohio. The clinic does have an overall board of trustees, but money management decisions are mostly made by the investment committee. The committee works without a consultant.
Mr. Roberts said despite the stock market's remarkable performance, he wouldn't be concerned about an increase in equities.
"I had jitters last July when (the Dow Jones industrial average) hit 5500," he said. (Since then, the average has topped 6500, closing at an all-time high of 6547.79 on Nov. 25. It closed at 6422.94 on Dec. 4.)
"It's something you watch, but you can't micromanage."
Health-care organizations are making changes to their asset allocations because they are recognizing that these large pools of assets need to start working for them, says Jim Morrissey, vice president at Miller Anderson who is responsible for the firm's healthcare business.
"There are very few healthcare organizations that have that aggressive an allocation to equities, but if you have a long-term horizon, (Mr. Roberts') strategy makes perfect sense," Mr. Morrissey said.
The investment pool has been through a lot of changes since Mr. Roberts joined the Cleveland Clinic four years ago. In 1992, the $265 million fund's asset allocation was 40% equities, 45% bonds and 15% cash, with one manager running the bulk of the assets. A year later, the board hired four equity and three fixed-income managers.
Today, assets have nearly doubled and the board has held onto the seven original managers. Its asset allocation is 73% equities, 20% fixed income and 7% cash.
Mr. Roberts said the board has no dedicated small-capitalization or midcap equity managers. The fund also has no dedicated exposure to equity real estate or alternative investments, and has no international stock or bond managers.
Although he would not name the managers, the equities are mainly active large cap, both growth and value.
It's possible the committee will consider creating a core equity position that is passively managed to guarantee a benchmark return, but for now, keeping the investments in a plain vanilla fashion -as Mr. Roberts put it - seems to have worked. Last year, the fund returned 30% net of fees. One manager, he added, returned 55% net of fees.
There has been some discussion about international investments, but that's as far as it has gone, Mr. Roberts said. Again, the issue is what kind of benefits non-U.S. investments provide for the fund. Some concerns from the committee include investment liquidity and integrity of the markets.
"It's just a matter of our committee not being entirely comfortable with non-U.S."
If the committee decides to drop its fixed-income exposure, assets will be reallocated to existing managers. No new managers will be hired, Mr. Roberts said.