Endowment Report
Fiscal year 2020 (July 1, 2019–June 30, 2020)
Investment management at Geisinger
The Geisinger Health Board of Directors has established a Finance Committee and an Investment Subcommittee to assist with oversight and monitoring of Geisinger’s investments. The Investment Subcommittee monitors performance relative to Geisinger’s investment objectives, and meets regularly to discuss capital markets, investment strategy, risk parameters, investment policies and asset allocations. Endowment assets are invested alongside other long-term operating assets of Geisinger and managed by an outsourced chief investment officer (OCIO). The OCIO is a fiduciary responsible for oversight and daily investment management including selection and monitoring of investments, tactical asset allocation, and facilitation of trading and fund flows. Geisinger also engages an independent investment consultant to assist with oversight of investment assets. These parties coordinate closely with Geisinger leadership on the day-to-day management and operations of Geisinger’s investments.
Endowment investment objectives
• Preserve the real spending power of the assets
• Grow assets over the long term in excess of inflation
• Optimize the long-term investment return for an appropriate level of risk
Endowment investment strategy and asset allocation is developed in adherence with these principles:
• The focus on a long-term investment horizon (perpetuity) can provide opportunities to avoid distractions from, and take advantage of, short-term volatility.
• Investment markets are largely efficient, yet not perfectly efficient, which allows for targeted opportunities to exploit these inefficiencies.
• Investment markets are increasingly global, and it is important to understand the differing risk and return profiles across all assets, globally.
• We seek to exploit opportunities to enhance total portfolio returns through broad diversification across asset classes with low correlations.
Endowment structure
As of June 30, 2020, approximately 190 individual restricted endowment funds, comprising $75.5 million, were held as investments for Geisinger. Endowments have been created to support a broad range of programs, departments, and initiatives across Geisinger. Critical to our future, endowments afford us the financial stability to make strategic investments in the health and well-being of our communities. As our research programs continue to expand and grow, these gifts will allow leadership to plan and allocate resources knowing that funding sources are secured. The chart (to the right) shows a break-down of endowment funds categorized by purpose.
Endowment growth
An important component of maintaining the value of endowments into perpetuity is to set a sustainable endowment spending rate that balances near-term objectives with the need to maintain the real value into perpetuity. Spend too much and the real purchasing power will erode through time, while spending too little will fail to adequately support the near-term needs of the designated purpose of the endowment. To aid in the analysis of the spending rate, leadership gathers and analyzes extensive forward capital market assumptions from our consultant and other sources that are based on both near-term and longer-term projections.
For the current year, the Investment Subcommittee approved leadership’s recommendation of a 4.25 percent spending rate calculated from the average fair market values for the proceeding three years. We use a three-year rolling average market value in order to help smooth the impact from short-term market volatility.
Recent peer studies show that Geisinger’s effective spending rates are broadly in line with the average endowment spending rates over the prior ten-year period.
Waterfall of total endowment flows
Over the past fiscal year, Geisinger received $2.4 million in gifts and transfer into endowment assets while providing $3 million in spending support to Geisinger entities.
Over a longer ten-year period, Geisinger received approximately $17 million in gifts and transfers into endowment funds, provided $27 million of support, and had net realized and unrealized gains of more than $37 million.
Portfolio positioning and performance
Historical data verifies that asset allocation is the biggest determinant of risk and return. Geisinger’s endowment asset allocation is reviewed and approved by the Finance Committee upon input from the Investment Subcommittee, OCIO, consultant, and leadership. The asset allocation seeks to diversify the portfolio across asset classes to maximize returns within the risk constraints of the funds.
Long-term fund asset allocation (as of June 30, 2020)
Long-term fund asset sub-allocation (as of June 30, 2020)
Long-Term Fund Performance
Endowment returns for the prior one-, three-, five-, and ten- year periods are included in the chart below. Over longer-term time periods including the prior five and ten years, Geisinger’s long-term fund has generated returns that exceed the median of other healthcare operating funds.
[1] Data from Investment Metrics. The # of portfolios in the comparison include: 124 (1-Year), 118 (3-Year), 104 (5-Year), and 84 (10-Year)
Geisinger has maintained historical fund and performance data of the long-term fund since October 1, 2003. Over this 16.75-year period, the endowment has matched its policy objective of CPI +4%. The hypothetical growth of $1 million is shown in the chart below.
Long-term fund: hypothetical growth of $1 million
Geisinger Long-Term Fund CPI+4%
