There's no excuse for letting assets languish on the balance sheet.
Your hospital, clinic or medical group may not have a war chest of capital to manage or a paid committee of experts to plow through myriad investment options. But there are things you can do to boost returns.
A minimum investment of $1 million, for example, can buy access to an array of investment products managed by a handpicked team of investment gurus. Hewitt Associates offers convenient, one-stop investment shopping to American Hospital Association members, affiliates and certain sponsored organizations.
Now in its eighth year, AHA Investment Funds controls some $350 million invested by 60 healthcare organizations, mostly small to mid-size not-for-profit hospitals. The average investment ranges from $5 million to $20 million.
AHA Investment Funds is an open-ended mutual fund comprising four investment portfolios:
A limited-maturity fixed-income fund designed to provide current income by investing primarily in short-term debt securities.
A full-maturity fixed-income fund that strives for a high level of income over the long haul by selecting long-term debt securities.
A diversified equity portfolio, which invests in stocks for long-term capital growth.
A balanced portfolio, which includes equity and debt securities for growth of capital and income.
"The idea here is it's a fund of funds program," says Timothy G. Solberg, an investment consultant at Hewitt Associates, the AHA's investment consultant. Participants can select any or all of the funds, depending on investment needs. Hewitt works with each hospital's finance committee to devise an appropriate asset allocation strategy based on its spending needs, cash flow and risk tolerance.
The mutual fund also furnishes a simple route for healthcare organizations to steer clear of the stocks and bonds of companies that grow, process or handle tobacco in any way. The fund, "tobacco free" since the fourth quarter of 1995, is a member of the American Medical Association Coalition of Tobacco-Free Investments, which recently called on all healthcare institutions to kick the tobacco-investing habit.
Hewitt chooses and oversees the money managers who run the four funds. When managers don't perform up to snuff, Hewitt replaces them, Solberg says.
Each fund's performance is measured against an index. For example, the AHA balanced fund, which returned 17.97% in the year ended Dec. 31, 1996, is compared with a customized index-a blend of 60% of the Standard & Poor's 500 stock index, 30% of the Lehman Brothers Aggregate Index and 10% of Treasury bills. In 1996, that was 15.2%.
The AHA's full maturity bond fund returned 2.24% on net assets for the year ended Dec. 31, compared with the Lehman Brothers Aggregate Index of 3.63%.
According to Morningstar, a Chicago-based financial publishing company, the AHA's balanced fund beat the 15.02% average of balanced funds it tracked last year. The balanced fund also appeared on the Wall Street Journal's list of top 15 performers for the 12 months ended May 2, 1996.
In the AHA program, equity or balanced portfolio investors pay Hewitt an annualized fee representing 0.75% of assets invested. For the bond funds, the fee is 0.5% of assets invested. Those figures include fees to Hewitt for managing the managers and other expenses. Across all four portfolios, total expenses, which reflect management fees investors typically incur when they invest in a mutual fund, range from 0.60% to 0.98% of net assets.
Consultants' best advice, though, is shop around. There are other options for small investors, such as index mutual funds, that might be a better deal for the money. Index funds mirror returns of the market by investing in the stocks in major indexes, such as the Standard & Poor's 500.
"Performance should always be tested against the appropriate benchmarks adjusted for risk," adds Bill Kellett, president of the New Haven, Conn.-based Hospital Fund, a membership corporation representing some 150 hospitals. The fund's investment performance consulting work draws on the academic community's research. Kellett suggests small hospitals consider measuring performance against a proxy, such as index funds offered by Vanguard, a mutual fund family.