There are more questions than answers as to why the board of directors of Hartford HealthCare Corp. summarily let go all the members of its in-house investment staff on Sept. 20 without warning. The board then turned to an OCIO model for management of $4.3 billion in the company's defined benefit and endowment funds.
Hartford HealthCare's board of directors approved the hire of Morgan Stanley as the firm's OCIO manager to replace the internal investment team, a statement from the company said.
Morgan Stanley manages $62.4 billion of outsourced assets under management as of March 31 and ranked 12th in Pensions & Investments' annual OCIO survey.
The change to an OCIO approach for investment management is puzzling, observers say, given that the investment team, led by CIO David J. Holmgren, has had strong returns over the years, including producing a 1.1% gain in the three months ended March 31 while the policy target was down 3.8%.
In contrast, Mercer reported a 5.1% median decline for endowments in the first quarter of 2022.
Over several periods ended March 31, Hartford HealthCare's returns easily outpaced its policy benchmark: the one-year return was 14.5% (policy target, 7.1%); 12.2% over five years (8.9%); 10.1% for the seven-year period (7.2%); and 10.1% over the past 10 years (7.5%).
For the fiscal year ended June 30, Hartford HealthCare returned 1.3% in a year when most peers were posting negative returns.
Mr. Holmgren was not available for comment.
Investment team members were surprised by Hartford's move to OCIO.
The seven members of the company's investment committee had no idea that the board of directors of Hartford, Conn.-based Hartford HealthCare had decided to scrap internal investment.
A meeting with the investment committee was hastily called on Sept. 20 and it was only then that members of the investment committee learned that Hartford Health-Care's board approved the dismissal of the internal investment team and move to Morgan Stanley.
Five of the seven people serving on the investment committee resigned after the meeting. Among them was David M. Roth, chairman of the Hartford HealthCare investment committee.
A request for interviews with Jeffrey A. Flacks, the company's president and CEO, and Chibueze Okey Agba, executive vice president and chief financial officer, to explain the change to an OCIO manager was not granted.
It's not unusual for non-profit health-care companies like Hartford HealthCare to hire OCIO managers, because many have multiple complex pools of assets ranging from defined benefit plans, endowments, operating funds, donor funds, foundation funds, self-insurance and reinsurance pools and more, said an OCIO specialist who spoke on background.
While internal investment teams often do manage these pools it can be difficult to maintain the team and hold on to employees who are recruited away by other companies, said the source.
Moving to an OCIO investment model provides stability in running a firm's funds because the manager has large teams to handle investments. Larger OCIO providers also tend to get preferential pricing from the underlying fund managers in the program, savings which are passed down to OCIO clients, according to the source.