Managing healthcare investment programs in an uncertain world 

Although some pressures from previous years have started to ease, others have reappeared or changed. For many, the combination of high operating costs, changing reimbursement models, and policy uncertainty, especially regarding potential changes to Medicare and Medicaid, has made investment strategy feel less like a long-term plan and more like a real-time navigation tool.

For investment teams and committees overseeing health system investment programs, the question may not be how to eliminate uncertainty, but how to adapt portfolios and governance processes to stay flexible in the face of it.

While each client is unique, our advice to healthcare investors facing these challenges focuses on five broad areas that we cover in this article:

• Liquidity
• Stress testing
• Private market commitment budgets
• Diversification
• Focusing on where capital is deployed most efficiently

What’s driving the need for action

Recent developments, including potential tariff-driven inflation pressures and policy ambiguity around Medicare and Medicaid, underscore just how quickly the investment environment can shift.

Some healthcare systems may be considering whether now is the right time to re-evaluate their portfolios. This might include reassessing the level of equity risk, the ongoing role of private markets, and how portfolios could respond to another economic or policy shock.

For others, it may also be about adjusting how they define "risk" itself, moving beyond volatility alone to include liquidity, drawdown sensitivity, and reputational exposures.

Re-Evaluating Portfolio Construction in Light of Flatter Efficient Frontiers

A notable theme in Mercer’s current capital market assumptions is the flattening of the efficient frontier. As return expectations across asset classes have converged, particularly with fixed income yields meaningfully higher, portfolios may no longer need to take as much risk to potentially achieve a given return target.

This shift may create an opportunity to re-examine portfolio construction holistically. Are existing allocations still the best fit for the current market reality? Should risk budgets be redistributed across asset classes, or perhaps tilted more toward income-generating strategies that may offer more stability amid uncertainty?

Optimizing Liquidity

Liquidity may be emerging as a central pressure point, especially for systems with larger allocations to private markets or those supporting growing operational drawdowns.

With distributions slowing and capital calls becoming more volatile, helping ensure that liquidity profiles align with both short- and intermediate-term needs is critical. Some systems are enhancing liquidity tracking, adding operational buffers, or segmenting portfolios by liquidity tiers to potentially improve transparency and responsiveness, preserve optionality and prevent forced selling.

Stress Testing Downside Risks

In uncertain environments, robust scenario analysis becomes a strategic imperative.

Stress testing helps investment committees and finance leaders understand the potential outcomes under adverse conditions: inflation or interest rate spikes, delayed Medicaid reimbursements, sharp equity drawdowns, or multiple events happening at the same time.

These exercises can reveal structural vulnerabilities and guide decisions on rebalancing thresholds, private market commitment pacing models, and cash reserve targets. They may also act as a helpful governance tool, aligning stakeholders on how to respond if specific thresholds are exceeded.

Incorporating Liquidity Needs into Private Market Commitment Budgeting

Private markets may remain a valuable return engine for many systems, but the commitment model introduces timing risk that is increasingly visible in the current environment.

As fundraising slows and exits are delayed, commitment pacing may require a more nuanced approach. Some organizations are revisiting assumptions about capital calls and distributions, layering in new liquidity buffers, and adjusting target exposures to help ensure that they do not inadvertently overshoot.

Incorporating real-time liquidity needs into commitment budgeting may not only reduce risk but can also enable better participation in new opportunities as they arise.

Diversifying To and Within Alternative Assets

Even as private markets evolve, their role in long-term growth strategies remains important. However, systems may benefit from reassessing the composition of their alternative allocations.

For example:

• Is exposure overly concentrated in one strategy or sector?
• Could the private portfolio be made more robust through additional credit, secondaries, or infrastructure exposure?

Diversifying not just to, but within, alternatives may help mitigate drawdown risk and improve cash flow dynamics. For those already heavily allocated, this may also be a time to consider the structure of existing investments, exploring open-end funds or evergreen vehicles that may offer more flexibility.

Looking Forward

Every healthcare organization will interpret these themes through the lens of its own circumstances, mission, capital structure, margin profile, and board risk tolerance. Some may choose to stay the course, viewing the current volatility as noise within a long-term plan. Others may see this as a moment to recalibrate, recognizing that markets, operations, and policy are no longer moving in predictable cycles.

In an environment where agility, judgment, and alignment matter more than ever, partnering with the right investment advisor may be one of the most effective ways for healthcare systems to navigate uncertainty while staying focused on their long-term mission.

How can Mercer help you?
With an ever-evolving market landscape, investors face myriad challenges in reaching their financial goals. We partner with our clients to build agile, more resilient and innovative portfolios, designed to deliver their individual governance and investment needs.

We do this by leveraging our investment advisory heritage, our deep knowledge of the global investment universe, and our capabilities across research, advice and solutions. Whether you're considering alternative investments for the first time or have an established portfolio, our flexible approach aims to help you achieve your goals. We adapt our services to match your requirements:

• Leverage robust manager research: MercerInsight®, an alliance with eVestment, provides access to insights and analytics on more than 6,700 managers and 35,000 strategies.
• Governance as an accelerator, not a brake: Leverage our knowledge to potentially expand your governance capabilities and improve your due diligence processes. This may help you to identify optimum investment opportunities.
• Implementation solutions: We can help you design and implement an investment plan to suit your needs and complement your strengths. Our offering includes our fully outsourced chief investment officer (OCIO) or fiduciary management services

As a partner to our clients’ portfolios, we look beyond any single perspective on the investment landscape to pursue outcomes that address today’s investment challenges and importantly prepare our clients for the future.