Case Analysis by Sarang Ananda Rao, Jeff Behm, Mike Bauer from the University of Cincinnati

1. Jeff Behm, SarangAnanda Rao , MikeBauer

2. Case Background
Partners Healthcare:
• Not-for-profit health care
• Dozens of partners throughout the Massachusetts area.
• Centralized Investment council makes several investment pools.
• Short term pool (STP) is risk free with avg annual return of 3.2%
• long term pool (LTP) is equity and long term bonds with avg annual
return of 11.65%
Challenges?What do you think are biggest Challenges for Partners?
• Partner organizations have different risk aversion and investment goals.
• Reliant on endowment funds, donations and the ROI to continue to
operate.There is volatility in investment. It is not garenteed.
• RealAssets are being added to the long term pools and the investment
council is deciding on the best asset mix for the LTP from a risk and return
standpoint.
Prior to the additionof the real assets,
asset mix of the LTP
Domestic Equity 55%
Foreign Equity 30%
Long-Term Bonds 15%
RealAssets:
REITs 0%
Commodities 0%

3. The Baseline Analysis
Sharpe Ratio of baseline= 11.65-3.2/12.02=.703 Sharpe Ratio of STP and Equity= 12.94-3.2/15.21=.64036
Which isbetter for the majority
(risk adverse investor)????

4. Investing in STP+ ONE Real Asset
REITs Commodities
Sharpe Ratio =
(9.44%-3.2%)/13.54%
=0.46
Sharpe Ratio =
(10.05%-3.2%)/18.43%
=0.37
Better Risk-Return
Trade-off

5. Asset Allocation

6. Optimal AssetAllocation
• The additionof an asset improvesthe risk-return opportunities.
• REITs bringimprovements, but Commoditiesbring equal return for a lower
risk
• This does not match our discussioninquestion 3. It found that REITs
perform better with the STP, but with the LTP, commoditieswere found to
decrease risk

7. Optimal Asset Allocation

8. Optimal Asset Allocation
• There are better risk-return opportunitiesfor addinga combinationofall
assets
• Different hospitalsshould choosesimilarcombinationsofall five assets to
have similarreturns at all risks
• The highestSharpe ratio occursat a return of 11%

9. Total Expected Return on Portfolio is 8%
As we change from baseline to optimal portfolio, Risk
reduces from 9.06% to 7.67% for the same returns

10. Portfolio Risk is 12%
Methodology

11. Portfolio Risk is 12%
As we change from baseline to optimal portfolio,
Returns increase from 10.9% to 17.3% for the same risk