Kaiser Permanente reportedly selling up to $3.5 billion in private equity funds

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Kaiser Permanente plans to sell up to $3.5 billion of holdings in private-equity funds due to cash constraints, The Wall Street Journal said, citing unnamed sources.

Kaiser is reportedly working with investment bank Jefferies Financial Group to offload up to $3.5 billion of stakes to secondary buyers.

However, a Kaiser spokesman said, "None of our decisions have been driven by liquidity needs; we maintain liquidity that is appropriate for a AA- rated organization. We will continue to make prudent, thoughtful investment decisions."

WHY THIS MATTERS

"The anonymous speculation in The Wall Street Journal – claiming that a recent shift in our investments out of private equity is driven by liquidity concerns – is simply not accurate," the Kaiser spokesman said. "Rather, our investment decisions have been driven by our regular review of our portfolio and our ongoing work to balance our investments, including shifting from private equity into other asset classes – public equity, fixed income and bonds – when that makes sense. To be clear, over the past five years, our private equity return has exceeded comparable return in public and other markets. From 2022 through 2023, we reduced our private equity allocation by about 1%."

Kaiser Permanente's investment portfolio supports its employee retirement and pension program, as well as the organization's work to meet the needs of our members, drive affordability, and improve the health of our communities, he said.

"This requires that we are a long-term investor and not driven by short-term performance or liquidity requirements. We make investment decisions that are informed by a wide variety of considerations," the spokesman said. 

THE LARGER TREND

On Friday, the large integrated health system based in Oakland, California released its Q1 financial results showing operating income of $935 million for the first quarter of this year, compared to $233 million for Q1 2023.

Kaiser Foundation Health Plan and Kaiser Foundation Hospitals operating income in the first quarter of 2024 was below historical first-quarter trends leading up to the pandemic, the health system said. 

"Continuing cost pressures familiar to the entire health sector in the first quarter included high utilization, care acuity, and the high costs of goods and services," it reported.

Last year, Kaiser formed the not-for-profit Risant Health to speed the adoption of value-based care.

This April, Kaiser Permanente completed its acquisition of Pennsylvania-based Geisinger Health, the inaugural member of Risant Health. More community-based health systems acquisitions are planned in the next few years, according to Kaiser. 

During Q1, Kaiser said it realized a one-time gain related to Risant Health's acquisition of Geisinger of $1.8 billion, driven by favorable financial market conditions.  

"Historically, the first-quarter operating margin is strongest for KFHP/H due to the timing of the open enrollment cycle, followed by lower operating margins in the three subsequent quarters as expenses increase throughout the year while revenue stays relatively flat," Kaiser said.

Email the writer: SMorse@himss.org