For the trailing three years, these organizations’ average annual net return on investable assets was 9.6%, while for the trailing five years annual net returns averaged 1.8%.
Participating organizations realized better FY2011 net returns on their defined benefit (DB) plan assets, averaging 1.3%. Three-year DB plan returns averaged 11.0% while five-year returns averaged 2.2%.
Beyond the flat year-over-year return, the most important shift to emerge from the study was in asset allocation, where healthcare organizations’ allocation to alternative investment strategies in their investable asset pools grew to an average of 21% in FY2011 from 17% in FY2010. This increase in the allocation to alternatives appears to have been funded by a decreased allocation to domestic equities, which declined to 20% in FY2011 from 24% in FY2010.
“Healthcare organizations’ higher allocation to alternatives is an ongoing trend that mirrors what we have found in recent annual studies of colleges and universities, foundations, and operating charities,” said John S. Griswold, Executive Director of Commonfund Institute.
Griswold pointed to fixed income allocations as another area of significant difference between healthcare organizations and other types of nonprofit. While healthcare organizations reported an average fixed income allocation of 36% in FY2011, allocations to this asset class were much lower, ranging from a low of 10% among colleges and universities to a high of 22% among operating charities. Healthcare organizations’ higher fixed income allocations have historically been used to support credit facilities and bond ratings for these capital-intensive institutions.
Viewing FY2011 returns by asset class, fixed income provided the highest return, an average of 5.4%. This was followed by a 3.9% return for alternative strategies, 0.2% for short-term securities/cash, -0.2% for domestic equities and -10.9% for international equities.