While nonprofit hospitals posted their best two-year investment performance in almost a decade, returns were barely high enough to bring three-year numbers back into positive territory, a new report says.
Investment returns for 2010, net of fees, averaged 10.9 percent for the 90 health-care institutions surveyed, following gains of 18.8 percent for 2009, says the report from the Commonfund Institute.
But average losses of 21.2 percent in 2008 dragged the three-year average annual return down to 0.4 percent, and the five-year return to 4.1 percent.
That’s far below the pre-recession three-year average of 9 percent and five-year average of 11.1 percent, and too low to cover spending, management costs and inflation.
“Returns such as these are essential to support the missions of the nonprofit healthcare organizations over the long term,” John Griswold, executive director of the Commonfund Institute, says of those higher returns.
Together, the nonprofit health-care institutions surveyed held $102.6 billion in investible assets and $42.3 billion in defined-benefit-plan assets as of the end of 2010.
Among asset classes, domestic equities performed best, with an average return of 17.8 percent, followed by international equities at 12.8 percent; alternative strategies, 9.9 percent; fixed income, 7.8 percent; and short-term securities and cash, 1.1 percent.
Among alternative investments, distressed debt earned 15.6 percent, more than any other sub-category, followed by a 14.2 percent return for energy and natural resources.
But nonprofit health-care institutions largely are playing it safe, with 37 percent of their investible assets allocated to fixed income, while domestic equities received 24 percent; alternative strategies 17 percent; international equities, 15 percent; and short-term securities and cash, 7 percent.
Among defined-benefit-plan assets, 32 percent was allocated to domestic equities; 29 percent to fixed income; 19 percent to international equities; 16 percent to alternative strategies; and 4 percent to short-term securities and cash.
The average operating budget for these institutions rose 22 percent in 2010 to $1.2 billion, while operating margins held steady at 4.1 percent.
And for the sixth straight year, debt for nonprofit hospitals rose to an average of $1 billion in 2010, up $903 million 2009 and $681 million in 2008.