The financial operations of health systems have been challenged since the start of the pandemic nearly four years ago, according to Alyssa Rieder, CIO of CommonSpirit Health, referencing tight margins, the acceleration of staff retirements across the system and rising costs, especially for labor, which makes up about 50% of costs for the system that has 160,000 employees across 20 states.

Over the last two years, that has meant coordinating closely with the system’s corporate cash management team to ensure the system has the resources it needs to keep operating.

“Our biggest recent challenge has been … to quickly raise substantial cash to support somewhat challenged operations, as margins have been under pressure in health care,” Rieder says. “Realizing that this could become an ongoing need, we worked to redesign the processes and significantly improve our communications frequency to ensure greater efficiency in raising and transferring cash in a timely manner from the long-term program to operating cash.”

The goal was to ensure adequate support for the organization while also minimizing cash drag impacts on long-term [investment] pool performance, Rieder says.

In addition to the operational challenges, Rieder’s team worked on the portfolio over the last 18 months, “reducing and taking off our duration underweight in fixed income, as U.S. rates increased significantly.”

“Maintaining this positioning significantly helped our relative performance over the last 18 months,” she adds.

Rieder says the CommonSpirit team’s most notable innovation involved its approach to risk management. “We worked to implement a new risk management system, while also incorporating key new capabilities in ascertaining improved [multi-year] attribution analysis at the manager, asset class and pool level,” which was accomplished in conjunction with custodian Northern Trust, she says. “We conveyed the importance of being able to understand attribution over a multi-year time horizon and worked with them to develop a solution which provided decision-useful data and greater insight on what attributes of our manager selection, style tilts and asset allocation impacted our results.”

Rieder’s team also made several seemingly simple, but impactful, changes within governance, changing the timing of meetings to better correlate with the availability of data, simplifying reporting and making the information more decision-useful. The composition of the committee also changed to involve more investment experts, improving guidance and oversight; and the content of the meetings was altered to be more generative and at a deeper investment level, with better data and more investment experts, according to Rieder.

Changes were also made in investment research and portfolio management, as the team worked to expand the oversight committee’s comfort with a somewhat higher level of investment in private equity and raised the long-term policy targets for the allocation by more than 30%, “from barely double digits to the higher teens.”

To achieve the higher allocation levels relatively quickly, Rieder’s group has been “strategically implementing significant near-term allocations to a few secondaries and co-investment fund managers,” Rieder says. “We believe this solution will help us achieve higher long-term, risk-adjusted returns and reduce our time to achieve our policy allocation by at least five years, while also enabling us to methodically increase our direct allocations over time and allowing us to maintain strong, constructive and fruitful relationships with our fund managers.”

—Amy Resnick