Survey Reveals Information About Community Investment Policies

Corporate Partners | August 25, 2016

Ziegler’s CFO Hotline survey for July focused on the community investment policies and was similar to a previous study conducted in 2012. A total of 165 Chief Financial Officers (CFOs) participated in the survey this year, with 63 percent representing single-site providers and the remaining 37 percent from multi-site organizations. Survey topics ranged from the size of investment portfolios to internal oversight of investment policies and third-party management.

Ziegler’s CFO HotlineSM survey for July focused on the community investment policies and was similar to a previous study conducted in 2012. A total of 165 Chief Financial Officers (CFOs) participated in the survey this year, with 63 percent representing single-site providers and the remaining 37 percent from multi-site organizations. Survey topics ranged from the size of investment portfolios to internal oversight of investment policies and third-party management.

The initial questions asked about overall annual revenue and then also the total size of the organization’s investment portfolio at the end of the first quarter of 2016. Overall investment portfolios ranged from less than $2 million to more than $1 billion, with median investment portfolios larger for the multi-site organizations than the single-site communities. While the median total dollar amount in the investment portfolio is generally at about 71 percent of the annual revenue figure, single site organizations had a higher median of 77 percent, while multi-site organizations came in lower at 60 percent.

Nearly all of the survey respondents – 98 percent in fact -- indicated that they have a formal investment policy. This graph details who oversees the formal investment policy within their organizations. More than 40 percent of respondents said that the Board Finance Committee oversees the policy while an additional 30 percent reported that they have a formal Investment Committee. Of the 6.7 percent of organizations who responded “other,” many indicated that the Investment Committee or Finance Committee makes recommendations, but that the full board has the final say and oversight. A few respondents noted that the executive management team maintains the investment policy and notifies the board of any changes.

When asked about updates to the formal investment policy, about half indicated that they updated their policy within the last year. An additional 37 percent reported updates in the past 2 to3 years and the remaining respondents indicated they last updated the investment policy four or more years ago. This is fairly similar to what was found in the 2012 survey.

Among those respondents with bond covenants, only slightly more than half (52.5 percent) reported that their investment policy monitors transactions that could affect bond covenants. The remaining 47.5 percent reported that their policy does not monitor transactions that could impact bond covenants.

The survey also tried to gather feedback on the overall objectives of the investment policy as well as risk tolerance of the organization. The vast majority – just more than 93 percent – prefer a balanced mix or lower risk investments, with just 6.7 percent preferring an aggressive mix and no one looking for investments with very high return potential. Most of that 93 percent, 6 out of 10 respondents, indicated that they believe a portfolio with a balanced mix of investments is most appropriate for their organization, and an additional 27 percent indicated that they lean toward lower-risk investments.

When asked about specific average annual rates of return that best reflect their total return objectives, nearly 70 percent indicated that they look for annual returns of 4-6 percent. Roughly 15 percent indicated “less than 4 percent” and an additional 15 percent reported annual rates of return in the 7 percent to 10 percent range.

The survey also aimed to dive into specific types of allocations. This graph details how investments are allocated across various categories.

More than 90 percent of those who participated in the survey indicated that their investment portfolio is formally managed by an outside third party. Nearly 8 out of 10 have the portfolio managed by an Investment Advisor and another 14 percent by a third-party consultant. Comparisons to the 2012 survey are provided as well.

Survey respondents also were provided the opportunity to make additional comments regarding the topic of formal investment policies. Below is a list of select comments that were made.

  • “We have a few different portfolios managed slightly differently based upon the needs of the product line.”
  • “We recently changed from passive investment advisers to a more active investment adviser and approach.”
  • “Owned by the Board but administered by Management.”
  • “The answer to Question #8 is driven by one's risk tolerance or sleep factor. For most non-profit's, a Growth directed approach would have the best long-term value, but if income from investments is needed in the short-term for operations, then a more aggressive approach might be more applicable. There isn't just one set approach that would be successful or tasteful for all organizations.”
  • “Expectations for return have been reduced over the past several years… prior to that our target was 8%.
  • “We do not rely on investments to subsidize operations so we can take more risk in our portfolio as we are typically a net contributor most years.”
  • “With an emphasis on protection of principal, it is very difficult to generate any significant returns.”
  • “We place some emphasis on Socially Responsible Investments.”
  • “This past April, a temporary addendum was added in light of the high fluctuation of market value to move to all CD/cash equiv.”

The senior living organizations’ responses included in this report have been collated without verification of the accuracy of the data comments therein. The results provided do not express an opinion of nor can they be guaranteed by Ziegler

This article was reprinted with permission from Ziegler.