Partners Healthcare Harvard Case Solution & Analysis

Problem Diagnosis

            Several investment pools have been established by the partners of the Partners Healthcare and the two main investment pools are the short term investment pool and the long term investment pool. The investment pools invest the funds of the hospitals in order to generate the desired risk objectives and under the minimum risk of their returns in order to fulfill the needs of all the hospitals. Furthermore, the investment assets in the short term pool comprised of about the short term fixed income financial assets with high quality in terms of the expected returns.

These are the reasons that the STP is treated as the risk free portion of the entire investment portfolios of Partners Healthcare. However, the investment assets in the LTP comprised of high risk equity stocks and foreign stocks also which made the risks much higher for this specific class of the investment fund. Therefore, in order to diversify the risks associated with LTP and to decrease the volatility of the returns for this specific fund in the long term, the Investment Committee of Partners Healthcare sought to introduce a new type of investment assets in the LTP.

This new type of the investment asset is called as the real asset. Two types of the real assets which were REITs and the commodities such as the futures were considered for incorporation in the LTP portfolios and a result of that the performance of LTP at the end of 2004 turned out to be excellent. Moreover, the Investment Committee wanted to expand the investment of the real assets and Mr. Manning had to recommend the composition and the size of the real assets to be incorporated into the LTP.

Analysis

Structure of Healthcare Partners System and Importance of Investment Returns

             There were several centrally managed pools operating at Partners Healthcare and the main objective of the organization was to satisfy the needs of the various hospitals that were operating under the network of Partners Healthcare. These investment pools had been devised and managed by the Partner’s Treasury. All the physician organizations and the hospitals could contribute their funds and invest in these pools.  The structure is as follows:

There were many centrally managed pools at Partners Healthcare however, Mr. Manning had focused on two of these pools which were the STP and LTP. The fixed income managers managed the STP and this pool comprised of all the low risk assets that’s why its current annual yield of 3.2% was also considered as the risk free rate. On the other hand, the LTP comprised of different types of equities, which had higher returns but their risk was also pretty much higher as compared to all the other asset classes. All the hospitals were different in terms of their characteristic and the risk tolerance profile of each hospital was also different therefore, they investment differently in STP and LTP.

The short term pool consists of short maturity and low risk fixed income securities and they provide the investors with a low risk asset for investment whereas, the long term pool consists of the higher risk assets such as bonds, equities and the maturity of these assets is usually more than 2 years. All the hospitals have different risk profiles and they take risk based upon their risk appetite and then accordingly they invest in short term and long term pools.

            The importance of the investment returns for the hospital is immense as the company is providing primary, secondary and tertiary health care services in England. The financial assets of all the hospitals played a significant role in the overall financial strategy of this non-profit organization and also for each of the hospitals. Investing in the endowments is highly critical to the generation of the funds for the organization and best management of the funds has strong and positive financial impacts for the whole organization. With the help of their financial strategies, all the hospitals accumulated funds so that they can be secure in future in the face of the operating losses in case the economy takes a downturn. Therefore, it could be seen that the importance for the investment returns for the organization’s overall activity is immense.......................

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