U.S. Health and Hospital Institutions Present Opportunity for Investment Firms and Consultants

U.S. Health and Hospital Institutions Present Opportunity for Investment Firms and Consultants
Investment consultants and asset managers should consider OCIO, LDI, and risk analysis to work effectively with these largely underserved institutions


April 2019, Boston. Investment consultants and asset managers are increasingly making the relatively small, but growing health and hospital client segment an important part of their institutional strategy, finds research from Cerulli Associates, a global research and consulting firm. As smaller, relatively resource-constrained institutions, healthcare firms and hospitals may be strong candidates for investment services, including outsourced chief investment officers (OCIOs), liability-driven investing (LDI), and more comprehensive investment risk analysis.

“Health and hospital organizations offer a sizeable opportunity for OCIO services, which have grown rapidly in the past decade in serving smaller corporate defined benefit (DB) plans, endowments, and foundations,” says Alexi Maravel, director at Cerulli. According to a 2018 Cerulli OCIO survey, 60% of providers of total portfolio solutions indicated that these clients will be “very important” to their business during the next two years.

LDI may be another area in which managers and investment consultants could better assist healthcare institutions. Maravel adds, “Cerulli’s research in the small to medium-sized segment of corporate DB plans (of which hospital plans are one constituency) reveals that most plan sponsors are only in the earliest stages of derisking pension liabilities from their balance sheets and are not properly allocated in their plan assets between liability hedging and risk-seeking instruments. This offers managers and consultants the opportunity to pivot their capabilities—normally provided to other corporate plans—to aid hospital plans.”

“Finally, hospital organizations need comprehensive risk analysis to make better investment decisions, which is a task that few of these institutions have undertaken,” explains Maravel. “Investment consultants and asset managers have the opportunity to conduct asset/liability studies, perform risk analysis, and develop a strategic asset allocation for the organization.”

In Cerulli’s 2018 survey of healthcare internal investment professionals, slightly more than one-third of respondents indicate that they plan to change their investment consultant or initiate a request for proposal for consulting services, which presents a solid opportunity. Maravel suggests, “For consultants and asset managers that may be new to the segment or are looking to use experience in one client type to explore a new target market, now may be the time to more actively engage healthcare organizations.”

Cerulli’s second quarter 2019 issue of The Cerulli Edge—U.S. Institutional Edition details the importance of maintaining strong credit ratings, cost control amid rising expenses, and services provided by OCIOs to health and hospital institutions.

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