An HFMA Healthcare Financial Pulse Resource
In the past year, hospitals and health systems witnessed a once-in-a-generation financial downturn that decimated virtually all portfolios.
Although some stock indices have recovered, the broader picture of unemployment, consumer sentiment, savings rates, and inflation in key sectors such as energy and health care suggests difficult times are far from over.
For Dave Wiederecht, president of investment strategies and co-manager of hedge fund portfolios at GE Asset Management, the risk factor that many overlooked was liquidity.
Think liquidity.
“In a down market, liquidity is your friend,” he says. “Yes, portfolio managers are smart to manage the volatility of their investments. But as we saw, investors need to be sure they understand the liquidity profile of the investment as well. When will you need your money back and in what form will you need it? If you were heavily invested in private equity or real estate or select fixed-income strategies, those assets can rapidly become illiquid. Unfortunately, some investors were unaware how these instruments would react under macro stress and weren’t aware of the true risks of these investments.”
Think diversity.
From Wiederecht’s perspective, diversity is more essential than in previous years. The days of institutional investments simply chasing returns with less regard for asset allocation are over. “As President Obama’s stimulus package takes hold over the next 18 months, we’re going to learn whether we’re entering a deflationary or inflationary environment,” he says. “In the meantime, however, investors will want some diversity in their portfolios: equities for an inflationary environment and fixed-income securities in a deflationary environment. The liquidity to switch asset classes as the environment becomes clearer will be crucial.”
Think the unthinkable.
Wiederecht also cautions that there are other significant wild cards on the horizon for investors. “We can expect changes in tax policy, of course,” he says. “Price shifts in energy and commodities are certainly strong possibilities, and interest rates are already at near-historic lows. An inflationary spike in oil, for instance, will curtail any potential economic revival, as would a steady increase in mortgage-interest rates. It’s not ‘back to square one,’ but there is a renewed emphasis on the fundamentals.”
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