2019 Knowledge Brokers

Chad Irish

Name: Chad Irish
Title: Partner
Company:  Mercer 
Assets under advisement: $12.9 trillion; AUM $282 billion
Type of clients: State and corporate pension plans, sovereign wealth funds, health care corporations, insurance companies, non-profit endowments and foundations, family offices

Chad Irish, partner with Pavilion, a Mercer Practice, works closely with health care systems’ staff and committees to develop investment strategies for their multiple pools of capital. Pavilion is a specialist team formed within Mercer following the company’s 2018 acquisitions of Pavilion Financial Corp. and Summit Strategies Group. Irish’s responsibilities include utilizing the firm’s proprietary enterprise risk management and analytical tools to develop a comprehensive investment strategy for each system that identifies key risks across all investment portfolios and measures the potential impact on the system.

“One of the ways we do that is through ‘CARE’—comprehensive assessment of risk exposure,” Irish tells CIO. Pavilion’s CARE analysis serves as a complement to conventional investment risk analysis. “We work closely with clients to balance the system’s organizational risk against its investment risk. One of the things our clients seek is growth over long-term investment horizons, but we also have to be very aware that market declines can have a significant impact on the system, and we want to quantify that risk,” he says.

Consolidation in Health Care
Irish noted that consolidation is a key trend in the health care industry, “similar to what you see in the investment consulting industry, and it’s typically generated by economies of scale—as you have smaller organizations come together, they’re able to become more efficient,” Irish says.

“One of the takeaways is that as health care staff are trying to manage the integration of multiple systems, they’re extremely busy. From an investment standpoint, you get new investable assets coming into a system, in many cases you also have new liabilities as well, whether it’s debt from the health care systems that were purchased, legacy defined benefit plans, etc.”

“It’s a change that’s continued over the last 10 years. We continually reassess the system’s investment risk tolerance—an investment strategy that was appropriate two or three years ago may need to be modified,” he says.

Outside of macro-level influences such as consolidation, Irish notes that there is a relatively high allocation to fixed income within health care portfolios, compared to other institutional investors. “We look at where yields are at, historically low levels, and seek ways to diversify the portfolio without dramatically changing the system’s investment risk,” he says.

Forward-looking return expectations for traditional assets including equity and bonds are relatively unattractive these days. “As we look at today’s market environment, we’re particularly focused on trade, the Fed and interest rates, and economic growth. Global growth continues to slow from its above-trend pace and it looks like that will likely continue throughout the remainder of this year and into 2020.

“Stock valuations are something that we watch closely—especially after a 10-year bull market in the US, they’re more elevated relative to international stocks. We also discuss fixed income, [and] as you look at the yields on the bond markets across the spectrum, we are seeing historically low yields,” he says.

Those circumstances have Irish and his team forecasting lower expected investment returns over the next 10 years compared to the last 10. There’s also uncertainty in the market as well, he says, some of which has to do with trade and the Fed.

“We look at alternative investments as a way to further diversify portfolios,” Irish says. “We continue to see hedge funds as an attractive opportunity; selection and implementation is very important. They provide an opportunity to diversify the portfolio particularly relative to fixed income investments.”

Alternative assets, Irish says, can increase the expected return of a portfolio without significantly changing the risk profile. Private debt and private equity are alternative investments for consideration. As new investments are considered, the team focuses on the assets’ impact on not just the portfolio, but on the system as well, and how alternative investments’ reduced liquidity may impact it.

By Steffan Navedo-Perez

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