By Debra E. Blum

Nonprofit health-care organizations generated 8 percent on their investment assets last year, down from nearly an 11-percent average return the previous year, according to a new study.

The decline was largely due to weaker investment performance in the domestic and international stock markets, and may be a harbinger of things to come, said William F. Jarvis, managing director of the Commonfund Institute, which conducted the study. (The full results of the study will be available in several weeks.)

“What we’ll see this year will reflect the volatility in the market,” he said. “Since 2003, we had a positive, benign climate for investing. That ended about a year ago, and we’re likely to see that difficulty show up even more in the numbers for 2008.”

The Commonfund Institute is the research arm of the Commonfund, a company in Wilton, Conn., that manages roughly $42-billion for approximately 1,800 educational institutions, foundations, and health-care and other nonprofit organizations.

The Commonfund Institute’s latest study examined data from 179 hospitals, health-care systems, and other non-profit health-care groups. The organizations held an average of $754-million in investment assets last year.

‘Evolution of Asset Allocation’

Among the study’s most noteworthy findings, said Mr. Jarvis, is a shift in asset allocations. According to the study, the average share of portfolios committed to alternative investments, such as hedge funds, rose to 17 percent in 2007 from 13 percent the previous year. And that figure is up from only 8 percent in 2003.

“We’re seeing the continuing evolution of asset allocation toward alternative strategies, although the number is still very low for the nonprofit world,” Mr. Jarvis said, pointing to the endowments at educational institutions, which, he said, have 42 percent of their assets in alternative investments, on average.

He also noted that among the health-care groups with the highest returns — an average of 11.5 percent in 2007 — alternative investments accounted for a much bigger piece of the pie. Among the 41 organizations with the highest returns, 28 percent of their assets, on average, were in alternative investments.

The study also identified another allocation shift. From 2006 to 2007, allocations to fixed-income vehicles, such as bonds, fell from 35 percent of assets to 32 percent. Among the groups with the highest returns, fixed income accounted for 19 percent of their portfolios.

Nonprofit organizations that provided data for the study also reported a slight rise in the number of full-time staff members who help manage investments — 1.3 — after the number had dipped slightly in 2006.

Mr. Jarvis said he was pleased to see the staffing numbers return to their approximate long-term average, though he remained worried that health-care organizations’ oversight of the investment and management companies they hire may be insufficient.

“These groups use an average of 15 separate investment firms for managing assets, and some groups are using double that number,” Mr. Jarvis said. “You can use consultants and outsource a lot, but the fiduciary responsibility is still with the staff and ultimately the board.”