Asset Allocation for CCRCs

CCRCs’ Unique Business Model Calls for Customized Investment Process

How does one determine the “right” asset allocation for a continuing care retirement community? You might start by first answering the question, “Why is asset allocation any different for CCRCs than for other charitable organizations”? For the majority of CCRCs we have encountered, entrance fees received by the organization accumulate during initial fill-up, creating a financial cushion for operations. At the same time, the organization has created a pool of liabilities in that they have promised refunds of entrance fees to residents. In most cases, the pool of assets is some fraction of the pool of liabilities. In addition, most CCRCs are financed with debt in the form of bank loans or tax exempt bonds. In light of this operational and financial leverage, organizations have a duty to be thoughtful and prudent regarding the balancing of assets and liabilities.   Specifically, loan covenants and entrance fee refund liabilities should come into play when these strategic policy decisions are being made.

Investment Policy should be developed with this unique business model in mind.  Is there a formula for developing Policy & Process for CCRCs? We hope not. Each group has different considerations including:

  • ·         Financial Strength – Perhaps the Organization has an investment grade rating, although the vast majority do not. How much operational leverage is there? What is the margin of safety in terms of meeting bond covenants?
  • ·         Debt Structure – How much of your debt is fixed rate and how much is variable?  When do your bonds come due and when are they callable? Are your variable payments floating or have they been swapped out? If they have been swapped, what is your refinancing risk?
  • ·         Are there true legacy endowments that pre-date the development of the CCRC model? How have these funds been integrated with entrance fee funds?
  • ·         Mission Fulfillment – Do you have plans for growth of plant and mission? How are you preparing for that in terms of asset allocation? The answer may be different for those whose expansion is around the corner than for those whose growth is longer term. Is there a spending policy?
  • ·         Risk Tolerance – Above and beyond meeting obligations, what is the attitude towards portfolio risk from an organizational perspective? How is this articulated in terms of Investment Policy?


We have found that senior living organizations benefit from an asset/liability perspective, when it comes to engaging investment consultants.  Clients have sought our advice on investment of bond proceeds (including both short term funds and long term debt service reserve funds), bond and interest rate swap structuring, debt retirement, and bond pricing.

About Jim Jeffery, CFA

Jim Jeffery, the founder and principal of Jeffery Asset Management has joined Solaris Advisors LLC as Managing Director where he will lead the non profit senior living effort. Jim is a Chartered Financial Analyst (CFA) with more than 20 years experience in the financial services industry. Have a question about your financial plan? ASK JIM

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