In May 2005, Michael Manning, the deputy treasurer of Partners Healthcare System, was formulating a recommendation to the Partners Investment Committee. He had been asked to analyze the role that different “real assets” could play in Partners’ $2.4 billion long-term pool (LTP) of financial assets. He was then expected, on the basis of that analysis, to recommend both a size and a composition for the real-asset portfolio segment within that LTP.
Background
Partners Healthcare System was the largest health-care network in New England, providing a range of primary, secondary, and tertiary health-care services to millions of patients from throughout eastern Massachusetts. The Massachusetts General Hospital and the Brigham & Women’s Hospital, two world-famous acute-care hospitals in Boston, had joined together in 1994 to found the Partners network. Both Mass. General and Brigham not only provided acute clinical care but were also research and teaching hospitals affiliated with the Harvard Medical School. Over the next few years, four suburban hospitals had also joined the network, as had dozens of physician organizations (practices with multiple numbers of doctors) across eastern Massachusetts. A variety of important staff functions, including treasury functions like asset management, had been centralized at Partners headquarters in downtown Boston, but all the clinical care and research took place in the decentralized network of hospitals and physician offices (see Exhibit 1). Partners’ Treasury Department, headed by Manning, reported up through a senior vice president of Treasury to the chief executive officer and the board. Importantly, there was also an investment committee consisting of well-known and respected investment professionals who determined the investment policy for Partners’ pools of investments, several of whom also served as directors and trustees of