Don't be afraid to take a chance, but err on the side of caution.
That message is purposely ambiguous, yet it may prove helpful to top managers and trustees of not-for-profit healthcare organizations as they consider investment strategies in these turbulent times.
New York Bureau Chief Karen Pallarito found herself in a nebulous situation as she tackled the topic of hospital asset allocation for our March 10 cover story.
As a reporter, she didn't want to seem like a Wall Street shill, especially when the raging bull market shows signs of tiring. Yet her research found that many health systems are too squeamish about investing cash.
Frankly, the traditional hospital approach is overly conservative, with many institutions parking cash in Treasury notes, certificates of deposit and money market funds. That strategy is safe but not necessarily sound.
Managed care, market consolidation and government spending cuts increase the role of "nonoperating income" on the balance sheet. And the stakes have never been bigger. The Investment Management Institute estimates hospitals have more than $400 billion in assets available for investment.
But as in most investment decisions, there's a downside to taking financial risk. Stocks, options, commodities and low-rated bonds can be very volatile. And while most investment counselors, money managers and investment firms are knowledgeable and credible, plenty of fast-talking hucksters are ready to play funny with hospital money.
One way to approach the challenge: Assume your healthcare organization is your widowed 58-year-old mother who has asked you how to invest her $100,000 nest egg.
We suggest that hospital boards appoint a small group of proven investment experts to review the organization's financial history and strategy. It helps if one of the committee members is a hospital trustee. That group then should create an asset allocation plan that balances traditional caution with the opportunity to experiment. Finally, the plan should be reviewed and revised at least twice a year.