Nonprofit Healthcare Organizations Report Average Investment Returns of 18.8% for FY2009
2010 Commonfund Benchmarks Study® of Healthcare Organizations Shows Sharp Reversal from Losses in FY2008

WILTON, CT., August 4, 2010 – The average FY2009 total return on investable assets for 85 nonprofit healthcare organizations participating in the 2010 Commonfund Benchmarks Study of Healthcare Organizations was 18.8 percent (net of fees), a dramatic improvement over the -21.2 percent return reported for FY2008. The FY2009 return was the highest in the eight years the Study has been conducted and came in the year following the poorest return of the eight Studies.

The 85 participating organizations represented $76.8 billion in investable assets and $26.8 billion in defined benefit (DB) plan assets as of December 31, 2009. “Investable assets” include endowment/foundation funds, funded depreciation, working capital and other separately treated assets.

For the trailing three years, Study participants reported average annual returns on their investable assets of -0.2 percent, while for the trailing five years participants reported average annual returns of 3.5 percent.

The average FY2009 return for Study participants’ defined benefit (DB) pension plans was 21.5 percent (net of fees) compared with last year’s return of -26.3 percent. Returns on DB plan assets averaged -0.8 percent for the trailing three years and 3.9 percent for the trailing five years.

Relative to some other areas of the nonprofit sector, participating healthcare organizations realized lower returns on their investable assets in FY2009. One hundred seventy-three independent and community foundations participating in the Commonfund Benchmarks Study® Foundations Report posted an average return of 20.9 percent for FY2009. Sixty-six operating charities participating in the Commonfund Benchmarks Study® Operating Charities Report produced an average return of 21.5 percent for FY2009.

Viewing FY2009 returns by asset class, international equities provided the strongest return, an average of 37.3 percent for Study participants. Returns for other asset classes were: domestic equities, 31.2 percent; fixed income, 11.7 percent; alternative strategies, 17.0 percent; and short-term securities/cash, 1.0 percent. The only negative returns came from subcategories of the alternative strategies allocation. Private equity real estate returned -25.8 percent; venture capital, -10.5 percent; and private equity, -7.2 percent. Other alternative strategies allocations were very strong, however, as commodities and managed futures produced a 32.0 percent return, energy and natural resources returned 28.2 percent, and distressed debt returned 20.8 percent. Marketable alternative strategies—including hedge funds, absolute return, market neutral, long/short, 130/30, event-driven and derivatives—returned 16.4 percent. 

“FY2009’s results represented welcome and much-needed relief after the dismal FY2008,” said John S. Griswold, Executive Director of Commonfund Institute, which sponsors the Study. “Still, the fact remains that the average return of 18.8 percent was not enough to move trailing three-year returns into positive territory and the average 3.5 percent return for the five-year period is well short of covering healthcare organizations’ spending and investment and costs, plus the added impact of inflation.”

“If we go back to the Study for FY2007—before the losses of FY2008—trailing returns for three- and five-year periods were 9.0 percent and 11.1 percent, respectively. Returns at levels such as these are essential for the long-term health of the nonprofit healthcare community,” Griswold said.

Other major findings of the 2010 Commonfund Benchmarks Study of Healthcare Organizations are highlighted in the following:

Asset Allocation

At December 31, 2009, participating healthcare organizations’ asset allocations were:

Budgets, Operating Margins and Investment Income

Operating budgets in FY2009 averaged $946 million, about a 4.4 percent decline from $990 million in FY2008. Operating margins expanded significantly—to 4.2 percent this year from 2.9 percent last year.

Participating organizations’ capital budgets grew modestly, rising to an average of $116 million this year compared with $109 million a year ago.

Reflecting the substantial improvement in financial markets, median investment income as a percentage of net income very nearly doubled, rising to 31.1 percent in FY2009 versus 15.8 percent in FY2008.

Debt

For the fifth consecutive year, participating healthcare organizations reported a higher average debt level. Overall, debt rose to an average of $903 million from $681 million in FY2008. As has been the case in the past, the largest increase in dollars came from organizations with assets over $1 billion, where debt increased to an average of $2.6 billion from $2.2 billion a year ago.

Forty-five percent of responding organizations confirmed that they had increased debt in FY2009. At the same time, 41 percent reported decreasing debt in FY2009. Only 14 percent indicated they made no change in debt levels this year.

Resources, Management and Governance

Participating healthcare organizations reported employing an average of 1.4 full-time equivalent (FTE) professionals to manage the investment function. This compares with an average of 1.2 FTEs reported in last year’s Study.

The average number of voting members on investment committees decreased modestly to an average of 7.9 members from 8.0 last year. But, this year’s Study showed growth in the number of investment committee members who are investment professionals. In FY2009, the average was 3.7 members who are investment professionals versus 3.4 in FY2008.

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