OCIO precisely tailored for you

Large health system reduces both complexity and fees with OCIO

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Organizations that grow through mergers or acquisitions also grow the size and complexity of their investments program. This story tells how we tailor-built a solution to help this client streamline their program, reducing both administration and costs.

The client

A large, private academic health system composed of nationally ranked hospitals and academic programs has more than 30,000 employees, 4,400 faculty, 8,300 students and 1,680 medical staff working together to provide quality patient care as well as education to future healthcare professionals. The investment office oversees more than $4 billion of non-qualified and qualified assets and $2.2 billion of defined contribution assets.

The challenge

Over the past five years, the organization has acquired or merged with four other healthcare organizations and one university, and the investment program has more than tripled. The addition of each subsidiary organization's multiple, unique asset pools resulted in a highly complex (and complicated) structure for the overall organization's CIO to navigate.

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The strategy

Russell Investments built a custom, multi-asset solution to provide the client’s team with the operational support they need, while allowing them to retain authority over key strategic decisions.

The solution, which leverages our size and scale, greatly simplified the organization’s investment program by paring it down from 14 separate pools to four consolidated asset pools. We worked with the client to develop an integrated risk financial framework and built the new investment program to align with this framework. Each pool has a target risk-return profile based on its liquidity requirements. The ultimate portfolio structure combines all the defined benefit plan assets into a single defined benefit plan, and consolidates each of the separate short-term pools, long-term pools and extended working capital pools into three main pools of capital.

The new platform is flexible and allows for continued portfolio enhancement—for example, the organization can screen for environmental, social and governance (ESG) factors in its funds to reflect any of its unique beliefs. We have also established agreed-upon ranges around the strategic asset allocation targets for each portfolio. These allow us to make tactical tilts when needed to capitalize on opportunities designed to enhance return or mitigate risk.

We built the separate account fund structure for the client and assumed responsibility for implementing the client’s strategic decisions and for performing many of the day-to-day operational aspects of managing a portfolio. Additionally, the client benefits from lower manager and vendor fees thanks to our size and scale. Pooling the administrative structure and vendor relationships also greatly reduced the organization’s operational burden.

The results

By working with Russell Investments as its Outsourced CIO (OCIO), the organization was able to streamline its multiple asset pools, retain control where desired, decrease the complexity of its investment program and reduce expenses.

The organization also benefits greatly from affordable access to our industry-leading manager research, portfolio structure insights and investment manager relationships. By increasing the client’s buying power with managers and vendors, we helped save them over 12 basis points in fees—which represents a reduction of 28%.

Our solution has reduced the organization’s administrative overhead and risk by allowing it to delegate many day-to-day operational and administrative functions. The CIO and staff now have additional time and resources to focus on higher-level, strategic and value-creating decisions that will allow the portfolios to better support the organization’s overall financial goals.

This is one story. But it's not your story.

As an institutional investor, your situation, your constraints, and your challenges are just as unique to you. If you're ready to demand a customized, holistic solution set, we'd like to talk.

 

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Rob Cittadini

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