Josh Rabuck is the executive director and chief investment officer at Indiana University Health. In this interview, he discusses how his background in pension management influences his role in leading a health care investment office, why industry peers are setting up in-house VC programs to fund the latest research and development, and why their risk capacity has gone up as the market cycle has prolonged.

Josh Rabuck was named on Trusted Insight's 2019 Top 30 Health Care Chief Investment Officers. 

Trusted Insight: Tell us about Indiana University Health, its investment office, and the team?

Josh Rabuck: Like most health care systems it seems like we manage almost every institutional pool under the sun except for a sovereign wealth fund. We have a pretty unique set up, structure and task. The way we've organized our team we think best helps accommodate the mandate of our investment office which is to oversee balance sheet assets, defined benefit plans, foundation assets, insurance reserves, and defined contribution plans. We've got to have really talented and flexible players on our team.
 

"My background in pension management has proven helpful because you're looking deeply at the liabilities, and that forces you to have a “risk first” framework."

We've organized ourselves more as generalists that are growing into a specialization. Since we last talked, we've added three more members to our investment team. There are six of us now that are focused primarily on manager due diligence and portfolio management. We sit within the treasury group of the broader organization. That allows us to punch a little bit above our weight because we share resources such as treasury operations and accounting.

Trusted Insight: Tell us more about your transition from a public pension to a health care system.

Josh Rabuck: My background in pension management has proven helpful because you're looking deeply at the liabilities, and that forces you to have a “risk first” framework. You are very focused on the goals of your assets as it relates to the unique “liability” that the assets support. For instance, our balance sheet supports IU Health’s growth strategies and that has consistently forced us to understand how best to support current growth strategies and create intergenerational resources for the system.
 

"Health care institutions want to best utilize assets that they have within their system by setting up in-house VC-type programs where they're helping fund some of the research and development of some of that IP."

In thinking about both current and intergenerational growth strategies that really is a dynamic “liability” as the health care environment changes over time. This “risk first” focus has served us well and has helped the organization to create some stability in how they view the assets. That's a key ingredient.

Trusted Insight: What are some of the disruptive health care or insurance technologies that you have seen in your institution’s portfolio?

Josh Rabuck: The one trend that we have seen peers actively involved with, as it relates to venture, is that health care systems sit on some unique IP. There are a lot of investment groups and investment offices at health care institutions that are looking at how to monetize that. Health care institutions want to best utilize assets that they have within their system by setting up in-house VC-type programs where they're helping fund some of the research and development of some of that IP. They're doing it in many different ways.

Trusted Insight: What are some of the challenges that are being faced in the health care system industry?

Josh Rabuck: What's unique about health care investment offices is the dynamic relationship between the assets that we invest and the myriad of needs for those assets in supporting the operations and helping to create innovative ecosystem overtime via a strong balance sheet. The changes in the operating environment force greater efficiencies and forces, key stakeholders, to ask questions on how quickly can we adapt to those changes, and how best to use our balance sheet to help smooth that transition over time. A bridge to a lower cost structure. That has implications for how you invest those dollars. That's a unique conversation and unique story problem for health care.
 

"We have a unique contribution via providing additional resources to help advance IU Health’s vision of leading the transformation of health care through quality, innovation, and education, and make Indiana one of the nation's healthiest states."

The challenges on the investment side have to be wrestled with proactively. If we are in the late cycle, there are meaningful returns that occur later in the cycle, but there's an increasing amount of risk that we're required to absorb in order to hang around that risk asset party to obtain those returns. It's important to approach that tension by focusing on how you are going to manage risk.

There's a lot of discussion in the marketplace about forecasting or calling market tops or the next recession. We don't spend our time thinking about that. We’re focused on being comfortable with the risk that we're taking going into that environment. There's a lot of energy and effort on our side focusing on making sure that we’re comfortable with our risk profile. For us, our risk capacity has gone up as the market cycle has prolonged, but our willingness decreases as valuations go from fair to stretched. It's a unique spot to be having your risk capacity increase at a time when your willingness is decreasing.

Trusted Insight: You touched on forecasting the market and what's to come. How do you find rest in such a volatile market?

Josh Rabuck: We have a lot of pools that we manage and given the diversification of assets in those various pools there's always something that is working and something that is not. At our office, you can walk around and observe people who are focused on a particular asset class that is out of favor, and they're frustrated. Then in the next moment, they're focusing on something that is doing extremely well in another pool. That helps keep us balanced and allows us to focus on how we manage the opportunities across portfolios from changes in markets.

Also, we are so focused on knowing, communicating, understanding and looking at the various risk attributes of our portfolio that we haven’t been surprised by how our portfolio responds to different events. If I think about some of the volatility we’ve experienced recently, the range of outcomes has been pretty well defined and not outside of our expectations.

Trusted Insight: Any final thoughts?

Josh Rabuck: We get to be involved in an important mission. As an investment office, we have a unique contribution via providing additional resources to help advance IU Health’s vision of leading the transformation of health care through quality, innovation, and education, and make Indiana one of the nation's healthiest states. I am grateful to serve with talented individuals that have created a culture that is obsessed with managing investment risks we are taking and are adapting to the challenges that come with supporting that vision. 

View our full catalog of interviews here. 

The list of 2019 Top 30 Health Care Chief Investment Officers can be found here.