## 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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