The results, released exclusively to Modern Healthcare, reflect the market decline in the last six months of 2011 after stronger performance during the first half of the year, said John Griswold, the institute's executive director. “For some reason, the optimism only lasts six or seven months,” he said, referring to last year and this year to date.
The 86 hospitals and health systems surveyed by the Commonfund Institute reported an average -0.2% return for domestic equities and -10.9% for international equities as the U.S. debated deficit reduction and Europe grappled last year with its debt crisis.
Short-term securities and cash delivered a positive return, but only marginally, at an average of 0.2%. Alternative investments, which grew more popular last year among healthcare investors, posted a 3.9% return on average. Fixed income returned 5.4%, on average.
Alternative investments such as hedge funds, real estate and private equity accounted for 21% of the average 2011 portfolio compared with 17% reported by 2010 survey respondents. Meanwhile, domestic equities made up 20% of the average portfolio, down from the 24% reported in 2010.
Alternatives, though considered riskier assets, help diversify a portfolio and can reduce overall risk, Griswold said, because a diverse portfolio will have assets respond differently to changes in the market and economy.
In 2011, private-equity real estate delivered the highest return, at 14.1%, on average. Venture capital and private equity followed at 11.1% and 10.7% returns, respectively. Hedge funds and other marketable alternatives struggled with a -1.8% return.
Healthcare organizations surveyed by the Commonfund Institute reported a combined $99.8 billion in assets.
Catholic Health Partners, a 29-hospital system based in Cincinnati, divides its portfolio equally among fixed income, equities and alternatives and saw a -1% return for the year that ended in December, said Jerry Judd, vice president of treasury for the system.
Judd said the rally last year in U.S. Treasuries boosted the system's fixed-income returns; however, that rally was offset by the system's exposure to international equities. He described 2011 as a “more challenging year” but said executives aren't unnerved by a single year's returns.
Catholic Health Partners executives, Judd said, diversify the system's portfolio to weather changing markets and investor anxiety that can influence returns, as happened in 2011.