Healthcare organizations can face tough conditions: Demand for health services continues to rise steadily with spending quickly approaching 20% of U.S. GDP according to the Centers for Medicare & Medicaid Services Office of the Actuary. While overall healthcare revenues are climbing, a number of developments, including healthcare regulation, expensive technology, mergers and acquisitions, new entrants, and evolving business models, are helping drive costs upward and uncertainty to soar.
Your investment pools likely play a critical role in your organization’s success in this demanding environment, as they provide resources to help you seize opportunities and overcome obstacles. But, like healthcare, the financial market faces its own challenges with sweeping changes driven by:
- the proliferation of complex investment strategies and products;
- a more volatile equity market, macroeconomic, and political environment;
- heightened regulatory requirements;
- growing demand for enhanced reporting and transparency;
- pressures to significantly strengthen portfolio risk management while lowering costs;
- expanding research requirements, especially in areas requiring specialized investment expertise; and
- unique client circumstances and demands.
Regardless of the amount of resources employed, you may still confront obstacles that could prevent your investment function from operating as smoothly as it can.
As we talk to clients, we see consistent themes in terms of constraints and can offer some practical tips which may help overcome these common problems.
Constraints on In-House Resources
We see common points of friction as we talk to organizations about their investments, people, and infrastructure. Many providers depend on staff members who split their time between investments and other finance duties, meaning resources can be stretched thin. While larger healthcare organizations may be able to dedicate full-time employees to investments, these providers may have only two or three professionals assigned to the function.
- Hiring additional staff is difficult for many hospitals because of shrinking operating margins. However, even with the budget for an in-house investment team, being able to hire qualified staff is hard in a competitive industry.
- Working with an outside provider can help close the gap in terms of resources, but it can add pressure to communications and lengthen the time it takes to enact portfolio changes.It can also mean your chosen provider is less connected to the day-to-day operations of the organization and can lose sight of the role of investments in the big picture.
- The rising cost of technology can also strain the investment management budgets of hospitals. Overseeing risk from investment, regulatory, fiduciary, and operational perspectives can be overwhelming for a staff that does not have access to expensive technology.
Demands on Investment Committees
Healthcare organizations frequently turn to a committee for investment management oversight. These committees face real challenges when supervising the investment of asset pools and can struggle to see how these pools connect to both the organization’s liabilities and the long-term strategic direction.
- First, the workload can be staggering. For each asset pool, we believe investment committee members should be engaged in establishing goals, performance objectives, benchmarks, funding requirements, liquidity needs, asset allocation, permissible asset classes and investments, and risk guidelines.
- The committee should help determine the right strategies and managers are selected and monitor performance over time to allow for expectations to be met. The committee must also comply with applicable laws, regulations, and fiduciary requirements related to investment management of the asset pools.
- Typically composed of external volunteers and individuals on the board of trustees, members can have widely varying knowledge of investments. Even if the investment committee includes experienced members, managing assets on a part-time basis can be overly taxing, especially given the complexities of the market and investment alternatives.
- In today’s environment, there is an emphasis on timely decision-making, as well as the ease and speed of implementing new or different investment solutions. The traditional consulting approach often involves providing information and recommendations to the investment committee, which is then responsible for making the final decisions. This process takes time, which can cause the healthcare organization to miss significant opportunities.
- Investment committees can suffer from excessive turnover, which diminishes institutional knowledge and adversely affects continuity in the organization’s investment strategy. The effect of changes in committee composition can be magnified when seasoned members are replaced by new members who do not have the same investing and finance knowledge.
- The investment committee meeting agenda is often dominated by quarterly market reviews and manager results. As a result of this short- term focus, the committee may have less time to address important long-term strategic considerations and needs.
Given our experience and interaction with clients, we want to share several best practices that we have observed which can strengthen your committee’s effectiveness and help you harness internal resources.
Tips to Improve Investment Committee Effectiveness
Work with your finance team and board to understand the role of your investment pools
The first step is to understand what role your investments play in your organization and its mission. Ask yourself: “Why are these assets here and how do they serve as resources for our organization?” Whether the answer is liquidity for day-to-day operations, support for outstanding debt or the source of funding for a long-term strategic project, understanding the “WHY” can help steer both internal and external partners in a way that makes those assets work for you.
Set an annual calendar and agenda
Establishing an annual calendar for investment committee meetings detailing what you intend to accomplish and when provides important direction for the committee. An annual roadmap allows for critical strategic issues to be addressed in a timely manner and keeps the committee focused on critical issues.
Designate a moderator for committee meetings
An effective decision-making process is one that considers all aspects of an issue and encourages the active participation of every committee member. A designated moderator can ask for each member’s input to encourage full participation: Each member should believe that he or she plays an equal part equal in deliberations. The moderator should strive to keep the discussion on track and focused on the decisions to be made.
Train new committee members and provide ongoing education for all members
The investment committee chairman should consider devoting time to personally bring each new committee member on board, including a review of the Investment Policy Statement (IPS), fund history, strategy, and working relationships. In addition, the committee can devote time during the year for investment education and training on fiduciary responsibilities by leveraging external partners who are happy to share their knowledge. Training and education is always important, especially if your committee experiences high turnover.
Establish and adhere to defined meeting agendas
Effective meeting agendas clearly define priorities and what needs to be done. They may also allocate well- meeting time accordingly, and provide the chair/moderator the discipline to keep the meeting on schedule and avoid discussions getting sidetracked.
Get a work done between meetings
Since your investment committee has a limited amount of time to devote to any single meeting, we believe it’s important to find ways to use non-meeting time to make progress. Projects and follow-up actions can be undertaken between meetings so no time is lost and that the committee has all the information needed to make decisions during meetings.
Distribute committee materials ahead of each meeting
Committee meetings can be most effective when members have had adequate time to prepare. By distributing materials well in advance, committee members have the opportunity to ask questions ahead of time and think through decisions that must be made during the meeting. Importantly, sending committee members performance summaries can help save valuable meeting time and enables the committee to focus on strategic issues.
Use your investment partner to relieve some of the burden
You do not have to go it alone: Your investment partner can provide valuable assistance in a number of areas, including governance, IPS creation and updates, asset allocation, investment structure, manager selection and oversight, implementation, reporting, education, and monitoring. Depending upon the investment relationship you choose, you may also gain much-needed fiduciary relief.
Serving Healthcare Organizations: The PNC Approach
PNC Institutional Asset Management’s Healthcare Solutions Group builds on PNC’s longstanding commitment to healthcare organizations. Our team has the experience to understand each client’s unique needs as a healthcare provider and the role that the various asset pools play in contributing to its financial health. In addition to providing investment management services, our group works with our partners across PNC to look at a client’s total picture and deliver a comprehensive, customized suite of financial services products and solutions.
For more information, please reach out to your Relationship Manager or fill out a simple Contact Form and we’ll get in touch with you.