Endowment Report
Fiscal year 2021 (January 1–December 31, 2021)
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. Geisinger engages third party investment managers and 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 December 31, 2021, approximately 201 individual restricted endowment funds, comprising $99.7 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 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 year, Geisinger received approximately $1 million in gifts and transfer into endowment assets while providing $3 million in spending support to Geisinger entities and earned more than $14 million of realized and unrealized gains.
2021 Endowment Flow
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, consultant, and Geisinger 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 December 31, 2021)
Strategic Target
Equity
Long-term fund asset sub-allocation (as of December 31, 2021)
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] Healthcare peer return data provided by Geisinger’s investment consultant Mercer Investments, LLC. The number of portfolios in the comparison include: 56 (1-Year), 54 (3-Year), 53 (5-Year), and 50 (10-Year)
Geisinger has maintained historical fund and performance data of the long-term fund since October 1, 2003. Over this 18.25-year period, the endowment has exceeded the policy objective of CPI +4% that was in place for the majority of this time period. The hypothetical growth of $1 million is shown in the chart below.
Geisinger Health Foundation
100 N. Academy Ave.
MC 40-36
Danville, PA 17822
570-271-6461
GeisingerFoundation@geisinger.edu