Carl H. Lindner College of Business

Carl H. Lindner College of BusinessUniversity of CincinnatiFIN7041: InvestmentsCase Study 2: Partners HealthcareDue: Tuesday, March 8, 2016InstructionThe non-presenting groups should submit a printed copy of case report that answers thequestions listed below. Those questions are not meant to be exhaustive. So feel free todiscuss other things you deem important. You are encouraged to collect facts and/or datato support your arguments.1. As a healthcare organization, why does the Partners care so much about its financialinvestments? How does the Partners manage its investments? Are there any challengeswhen making investment decisions? What are the proposed changes and themotivations 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 inExhibit 3. On a risk-return graph, plot the returns and risks of the various potentialportfolios 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 ifthey 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 thetwo real assets (and nothing in the baseline LTP). Which real asset would provide thebetter risk-return tradeoff? Explain your answer.4. On a risk-return graph, plot a curve of the optimal portfolio combinations in thebaseline 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 samegraph, plot a curve of the optimal portfolio combinations in the 4-asset case in Exhibit6: US Equities, Foreign Equities, Bonds, and REITs. Do the same for the 4-assetcase in Exhibit 7: US Equities, Foreign Equities, Bonds, and Commodities. Does theaddition of each real asset improve the risk-return opportunities? If so, how? Whichreal asset brings more improvements? Can you reconcile your answer here with theone in part 3?5. Plot a curve of the optimal portfolio combinations for the 5-asset case in Exhibit7. Compared with the curves in part 4, do you get better risk-return opportunitiesby adding both real assets to the LTP? Should different hospitals choose differentcombinations 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 needto do any formal calculations.)6. Suppose one member hospital wishes to invest in the STP and the LTP such that thetotal expected return on its portfolio is 8%. Graphically, illustrate the improvement inrisk 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 portfoliostandard deviation of 12%.2

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