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Helping Clients Navigate Opportunities across Asset Pools Liquidity, volatility, risk/return scenarios to drive enhanced returns for a non-profit healthcare client

The Challenge

A health care system client approached J.P. Morgan seeking to diversify the risk across all asset pools in their portfolio in order to minimize performance impacts to their balance sheet.

Specifically, the client faced challenges in:

  • Capturing the recent gains in their pension plan
  • Educating staff on the principles of Liability-Driven Investing
  • Optimizing risk/return objectives in their board-designated operating assets
  • Maximizing returns in their self-insurance pool
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Jean Walshe
Jean Walshe

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Our Approach

We discovered that the board-designated assets and pension were being managed with the same investment framework despite significantly different liability streams. In the case of the board-designated assets, the client was paying out a fixed rate plus inflation each year to meet operating expenses. In the case of the pension, assets were being invested to match growing liability streams. However, the risk/return profile and investment horizon of the assets and liabilities in the pension were mismatched.

By leveraging our risk modeling and analytic capabilities, we discovered the following trends:

  • Pension – Our analysis showed a significant mismatch in the interest rate sensitivity of the client’s asset and liabilities. Using the client’s actuarial reports, we were able to project the client’s future liabilities for the next 60 years.

  • Board-designated assets – We examined the client’s portfolio using risk factor analysis to understand the true drivers of return. The data suggested a majority of the client’s portfolio volatility was driven by a growth fund, despite being diversified across asset classes.

  • Self-insurance pool – Based on our analysis of historical payouts for medical malpractice, this asset pool could afford to take on more risk through further diversification.

Below shows the transition of the pension asset pool to a customized LDI (liability-driven investing) model:


The Solution

We rebalanced the client's portfolio across the different asset pools to more closely meet the stated objective for each pool and limit the overall balance sheet impact:
  • Pension – We developed and implemented the first stage of a strategic glidepath. The glidepath was designed with the client’s specific objective of limiting funded status volatility. We also educated the client’s Investment Committee on Liability-Driven Investing, incorporated Socially Responsible Investing guidelines, and partnered with the client’s pension consultant throughout the process.

  • Board-designated assets – Based on the risk factor analysis conducted, we recommended a larger allocation to lower-volatility, market-neutral investment solutions. By incorporating our recommendation, the client was able to reduce the potential impact of certain asset classes on their balance sheet.

  • Self-insurance pool – We recommended the client change their asset allocation from a 10% equity/90% fixed income portfolio to a 20% equity/80% fixed income portfolio, therefore enabling the client to reduce the annual balance sheet contribution to the pool.

In conclusion, we were able to work closely with the client to achieve their investment goals across a broad range of asset pools by employing our robust analytic and risk-management capabilities.

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