Weak Equities Hurt Health Care Non-Profits

September 16, 2008 (PLANSPONSOR.com) - The average annual total return on investable assets for FY2007 for nonprofit health care organizations participating in the 2008 Commonfund Benchmarks Study of Health care Organizations was 8%.

A Commonfund news release said the latest performance was down significantly from the 10.6% seen for FY2006, but up from 6.3% for FY 2005.

According to the announcement, the lower year-over-year return can be attributed largely to weaker investment performance in domestic equities and international equities, both of which saw returns decline by half compared with FY2006.

For participating health care organizations, domestic equities returned 6.3% in FY2007 versus 13.9% in FY2006, while international equities returned 12.1% compared with the previous year’s 24.7% return.

The year’s highest returns were to be found within the broad alternative strategies allocation. Overall, alternative strategies returned an average of 12.8%, up from 11.7% in FY2006. Within alternative strategies, energy and natural resources (oil, gas, timber,commodities and managed futures) led with an average return of 21.5%, strongly ahead of FY2006’s average return of 7.9%. Distressed debt followed closely, delivering an average return of 19.2%, well ahead of 9.1% a year earlier.

Meanwhile, private equity posted an average gain of 17.7%, comfortably ahead of 11.3% in the previous year’s report. Marketable alternative strategies (which include hedge funds and absolute return funds) returned an average of 11.8% compared with 10.9% in the FY2006 Study. Venture capital returns nearly doubled to an average of 10.1% from 5.3% – while private equity real estate declined to an average return of 13.9% from 17.1% in FY2006.

The average fixed income return rose to 6.5% from 4.7%. With short-term interest rates falling dramatically in the second half of the year, the return on short-term securities and cash fell to an average of 5.1% from 8.2% in FY2006.

There was a marked change in participating health care organizations’ asset allocation, in which the average share of portfolios committed to alternative strategies rose to 17% from 13% last year, the study found.


The study included 179 organizations with total investable assets of $135 billion and defined benefit plan assets of $55.7 billion.