For a non-profit hospital or health system seeking to design effective investment portfolios for its various asset pools, understanding the role of each asset pool is a crucial first step. The organization’s goals and exposures can impact every part of its portfolio construction process, from strategic decisions on risk tolerance and return objectives, to more targeted decisions on asset class exposures and investment vehicle preferences.

Given that different organizations face their own unique challenges, this paper does not prescribe a specific method of portfolio construction, but instead offers a framework for evaluating asset allocation decisions. We highlight the need to consider and evaluate the following:

• Multiple roles of each asset pool within the enterprise, with a focus on the long-term pool and how its role in supporting the enterprise will drive the risk tolerance and return target of the investment portfolios.
  
  
• Market environments in which the stability of the investment pools would become most important.
  
  
• Any consideration of the realization of gains and losses on portfolio implementation decisions.