Choosing an investment management consultant.

Choosing an investment management consultant

Finding the right investment consultant can significantly affect the performances of an institution's board-designated, operating, and building funds. Consultants can be hired to coordinate entire investment programs or to focus on specific objectives.

* Establish an investment policy that takes into account the duration of funds and desired rates of return; * Decide the appropriate level of risk, which determines whether a conservative, moderate, or aggressive investment style is warranted; * Identify the proper mix of assets to help achieve investment goals and temper risk; * Select investment managers with the best potential for above-average performance and set bench-marks for each manager; * Evaluate the performances of funds and of each manager; * Identify investment innovations that make sense for the institution; and * Gain a perspective on what other, similar investors are doing.

RESOURCES. Approximately 5,700 investment consultants are registered in the United States. Consequently, resources may be needed to help a healthcare financial manager make an informed selection.

A financial manager should confer with any hospital board members who have experience in managing corporate pension plans through investment consultants. Outside accounting firms, attorneys, money managers, peers in the industry, and the trust department of a hospital's bank also should be consulted.

Several reference publications that specialize in investment consulting also are available:

* Consultant Compendium II, by Jerome Grimm, published by Consultant Compendium, Inc.; * The Consultant Directory, published each fall by Crain Communications, Inc.; * The annual Money Market Directory of Pension Funds and Their Investment Managers, published by Money Market Directory; and * The Prudent Investor, by James P. Owen, published by Probus Publishing Co.

When considering candidates, the following questions should be asked: * What is the extent of their technological capabilities? * What is their track record of selecting money managers before the manager is widely known? * Is their primary business investment consulting or do they receive compensation from brokerage or other investment services? * Who owns the business? * How soon do they provide performance data after the close of a quarter? * What staff member will meet with hospital representatives and how often? Is this individual of senior or junior position? and * What are their financial resources?

CLARITY. A good consultant is first a good communicator. A consultant must clearly impart information to a healthcare organization's chief executive officer and board of trustees. Reports should be tailored to an institution's specific needs, and analyses should be presented in a comprehensive fashion. A client pays for clarity -- not for technical jargon.

A hospital also must be clear with its consultant and state its expectations explicitly. Because consultants' fees directly reflect the amount of time spent on each project, their time must be managed carefully.

Turnover will continue among board, staff, and investment committee members. Nonetheless, the continuity of an organization and its investment program depends on a long-term relationship with a consultant. Tomorrow's executives need the success of past thinking as a foundation for building future programs.

Allan Gunderson is a vice president with the Northern Trust Company, Chicago, Ill. He specializes in providing investment management services to institutional clients, including many healthcare organizations.