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Exclusive Q&A: Michael Malewicz, System VP, Treasury and CIO, SSM Health

by trusted insight posted 2years ago 7320 views

Michael Malewicz is the system vice president - treasury and chief investment officer at SSM Health, overseeing a $4B portfolio. Prior to this, he held various treasury and investment roles, including director of treasury at City of Hope and treasurer for Washington Hospital Healthcare System. He has an MBA from the University of San Francisco and a B.S. in Finance from California State University-San Diego.

Michael was recently named to Trusted Insight’s ranked list of the Top 30 Hospital Chief Investment Officers. He graciously spoke with Trusted Insight on May 9, 2016. The following interview has been edited for clarity.

Trusted Insight: It was recently announced that SSM Health has divested its investments in coal. Can you tell me how that decision fits within your overall investment philosophy?

Michael Malewicz: Our sponsoring organization, The Franciscan Sisters of Mary, had made the decision to divest of all fossil fuel holdings some time ago, and we had been in discussions with them about how we could align our objectives better. One of the things we discussed was divestment of all coal holdings within our portfolio. Alternative energy is also a better investment opportunity in the future. Therefore, we decided to recommend to our investment committee that we divest of all coal holdings within our portfolio and formalize that within our investment policy. The transition was fairly straight-forward and helps us align ourselves better with our sponsoring organization.

Trusted Insight: How are you investing in alternative energy?

Michael Malewicz: We created a slice of our private equity portfolio that is dedicated to new and developing opportunities within energy, energy production and “caring for creation” – and to programs that help the underserved.

Trusted Insight: And across the portfolio as a whole, how are you looking to reposition yourselves going forward?

Michael Malewicz: Our investment committee, which is a cross-section of managers throughout SSM Health, maintains a long-term perspective. With that long-term perspective, we are able to create a “barbell-type” of portfolio, where we have a large number of assets that help us generate liquidity within our portfolio to back our short-term debt. The other part of the barbell is capturing the illiquidity premium in other investment opportunities that have a greater long-term return.

Trusted Insight: Where are you looking to take advantage of the illiquidity premium?

Michael Malewicz: We have had allocations to real assets for some time, and currently that consists mostly of real estate investments. We like the illiquidity premium available in real assets. We have also recently created a private equity allocation, as we want to take advantage of the illiquidity premium there. The private equity portfolio is more general and not geared toward venture -- we would probably classify it as focused on “corporate finance.” In addition, we have a direct hedge fund program. While we tend to be a little more liquid in our hedge funds, we still consider them an illiquid investment because they can sometimes be locked in for a year.

Trusted Insight: Have you favored any particular asset allocation over the course of your treasury and investment career?

Michael Malewicz: I've always been a big proponent of taking advantage of the illiquidity premium. Different organizations have different risk and volatility tolerances. Where appropriate, we've been able to add either hedge funds or private equity, depending on the organization, their stability and their size. SSM Health is just beginning the process of investing more heavily into illiquid assets, and it will be some time before we are fully invested.

Trusted Insight: How does your team operate to achieve SSM Health’s investment aims?

Michael Malewicz: I do not believe in a treasury department that's divided into different specializations. So everyone on the team is a generalist, participates in the meetings and offers valuable input. As we are a large organization with almost $6 billion dollars in revenue, our portfolio has different operating characteristics that we need to take into account as we're making investment decisions.

Trusted Insight: What are some of those operating characteristics that you have to take into consideration?

Michael Malewicz: With about $5.5 billion in revenue and more than 31,000 employees, SSM Health spends approximately $300 million a year on capital expenditures, which are being funded by operations. However, if operations were not able to fund CapEx, it would need to come from the investment portfolio. SSM Health also maintains a large self-liquidity program where our short-term debt can be “put” back to us during the year. Therefore, SSM Health needs to maintain adequate liquidity to support our annual capital requirements as well as our short-term debt.

Trusted Insight: You also have responsibility for your investor relations program, which involves talks and road shows for your investors. How does that work?

Michael Malewicz: Our investor relations program is a critical part of our capitalization program. Though SSM Health is a not-for-profit organization, it has investors, just like publicly-traded companies. As a result, we have essentially the same obligations as a public company to provide quarterly reports highlighting our financial performance, strategy and plans. So the investor relations program enables us to communicate that information more effectively and to build liquidity in our outstanding bonds so that we have access to capital going forward.

Trusted Insight: That sounds quite different to the endowment model. How would you say that working for a hospital differs to other institutions?

Michael Malewicz: Sure. With a typical endowment model, their spend is generally pre-determined, so the liquidity trends in the portfolio are more clearly defined and known in advance. By comparison, we have a large operating company that we need to support, so our spending may not be as predictable. We dedicate a lot of time analyzing and predicting cash flows and performing financial modeling so that we have as much insight as possible into what's happening. That helps us structure a portfolio that best meets the organization's needs.

Trusted Insight: How do you bridge the gap between the treasury and investment aspects of your role?

Michael Malewicz: We don't see them as separate. We do a tremendous amount of cash forecasting and modeling within our treasury function that essentially tells us the requirements of the portfolio. This forecasting and modeling then leads into developing an investment strategy and thinking about how the portfolio strategy will need to change to support the organization. All of my past treasury roles have included responsibility for the investment portion of the organization, although the role of a chief investment officer is still a fairly new concept within health care. At SSM Health, we've been given a little more latitude to develop a portfolio strategy that better supports the organization. As a result, my role is expanding and becoming a little more strategic.

Trusted Insight: That's quite unique in itself; you're not just one organization, you have many individual hospitals that fall under your umbrella. Is it quite challenging to align a new acquisition to the portfolio?

Michael Malewicz: Correct. We have 20 hospitals, and each has its own capital requirements. There's a working capital component when you bring in a new organization, and there's a capital expenditure component as well. One is short-term working capital, and the other is long-term capital. That's where the financial modeling that we introduced has really benefited the organization. The modeling analysis gives us some insight on an optimal capital structure to maintain our access to capital.

We think of our investment portfolio as our source of equity financing, whereas the bond market provides our debt capital. There are different components of return and risk, and so if we were going to use equity to finance an investment, we would have minimum return requirements that take into account our total cost of capital.

Trusted Insight: Is there anyone in particular has influenced your investment approach?

Michael Malewicz: Everyone I’ve worked with really, but if I was to highlight a couple of individuals:

When I was working for Qualcomm in San Diego, Dick Grannis was treasurer at the time and he had very good perspectives on financing an operating company with either debt or equity and on considering cash as a source of equity. We designed our treasury department at SSM Health in a similar fashion and have a small team of generalists using technology to be as productive as possible and incorporating many ideas from a number of different areas.

Also, my current leader, Kris Zimmer, has been a strong advocate for the innovation that's occurred within the treasury department at SSM Health. He's given our team the latitude to make needed changes quickly, enabling us to accomplish a lot in recent years. That said, to ensure our success going forward, we will need to continue to innovate as the health care landscape changes.

Trusted Insight: What drives your passion for your role?

Michael Malewicz: We are a healthcare organization that is dedicated to improving the lives of our patients, and I take that seriously. The way I see it, our treasury and investment teams are all about supporting SSM Health’s mission of delivering exceptional health care services to the communities we serve across Illinois, Missouri, Oklahoma and Wisconsin.

Learn more about the the Top 30 Hospital Chief Investment Officers.