Carl H. Lindner College of Business

Carl H. Lindner College of Business
University of Cincinnati
FIN7041: Investments
Case Study 2: Partners Healthcare
Due: Tuesday, March 8, 2016
Instruction
The non-presenting groups should submit a printed copy of case report that answers the
questions listed below. Those questions are not meant to be exhaustive. So feel free to
discuss other things you deem important. You are encouraged to collect facts and/or data
to support your arguments.
1. As a healthcare organization, why does the Partners care so much about its financial
investments? How does the Partners manage its investments? Are there any challenges
when making investment decisions? What are the proposed changes and the
motivations behind such changes?
2. Suppose different hospitals within the Partners choose different mixes of the “riskfree”
STP and the baseline LTP, whose future expected returns and risks are shown in
Exhibit 3. On a risk-return graph, plot the returns and risks of the various potential
portfolios in Exhibit 3. What shape does a line drawn through these portfolios take?
In contrast, what would the risk-return opportunities available to the hospitals be if
they could invest only in the STP and US Equities?
3. Suppose the hospitals within the Partners can invest in the STP and only one of the
two real assets (and nothing in the baseline LTP). Which real asset would provide the
better risk-return tradeoff? Explain your answer.
4. On a risk-return graph, plot a curve of the optimal portfolio combinations in the
baseline 3-asset case detailed in Exhibit 5a: US Equities, Foreign Equities, and Bonds.
(Hint: This curve should look just like the one in Exhibit 5b.) Then, on the same
graph, plot a curve of the optimal portfolio combinations in the 4-asset case in Exhibit
6: US Equities, Foreign Equities, Bonds, and REITs. Do the same for the 4-asset
case in Exhibit 7: US Equities, Foreign Equities, Bonds, and Commodities. Does the
addition of each real asset improve the risk-return opportunities? If so, how? Which
real asset brings more improvements? Can you reconcile your answer here with the
one in part 3?
5. Plot a curve of the optimal portfolio combinations for the 5-asset case in Exhibit
7. Compared with the curves in part 4, do you get better risk-return opportunities
by adding both real assets to the LTP? Should different hospitals choose different
combinations of the five assets (i.e., different LTP)? Why or why not? On the curve,
which combination of the five assets provides the best risk-return tradeoff? (Hint:
Graphically, find the point with the highest Sharpe ratio on the 5-asset curve. No need
to do any formal calculations.)
6. Suppose one member hospital wishes to invest in the STP and the LTP such that the
total expected return on its portfolio is 8%. Graphically, illustrate the improvement in
risk by switching from the baseline LTP to the new optimal LTP in part 5. Similarly,
illustrate the improvement in return for a member hospital that targets a portfolio
standard deviation of 12%.
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