Moody's Sharpens Focus on Board Oversight of Investment Management
11/14/2007In an important governance development, Moody's Investors Services has released a "Special Comment" that speaks to the important role the governing board can play in monitoring the investment strategies of a tax-exempt hospital in the current volatile financial market.
Entitled “Not-For-Profit Hospitals Vulnerable to Investment Market Volatility,” the Special Comment acknowledges the growing trend among tax-exempt hospitals to develop more sophisticated, more complex and sometimes riskier investment strategies as a means of offsetting operating revenue volatility. The Special Comment also acknowledges that many hospitals have developed investment expertise comparable to that of colleges and universities, and that such expertise is capable of reducing investment risk from such strategies. However, it also observes that hospitals and health systems that have neither developed well-articulated investment strategies nor updated investment oversight processes may be subject to greater risk should they adopt new investment strategies that include allocations to private investment assets.
Given these potential risk factors, Moody's believes it critical that the governing board assure an increased level of oversight over hospital investment strategies. This oversight would include confirming that individuals with appropriate investment management expertise are in place both at the executive level and on the investment management committee. It would also include application of the board conflicts of interest and other governance policies to membership of the investment committee, to make sure that no one individual plays a dominant role in decision making.
Accordingly, tax-exempt hospitals and health systems may wish to work with their chief legal and financial officers to review the recommendations of the Moody's Special Comment and to brief their boards and investment management committees on related implications.
Source: Moody's Investors Service/Moody's U.S. Public Finance-Special Comment, November 2007 "Not-For-Profit Hospitals Vulnerable to Investment Market Volatility."
Analyst Contacts: Lisa Martin, Senior Vice President; Lisa Goldstein, Senior Vice president; Roger Goodman, Vice President-Senior Analyst; John Nelson, Team Managing Director (212.553.1423)
