Case Detail

Case Summary

Arbor City Community Foundation (B): Managing Good Fortune

Case Number: 5-310-502(B), Year Published: 2010

HBS Number: KEL586

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Authors: Karl SchmeddersRussell Walker; Michael Stritch

Key Concepts

Value at Risk, VaR, VaR Calculation, Diversification, Risk, Risk Management, Foundation, Fund Management, Portfolio Analysis

Abstract

The Arbor City Community Foundation (ACCF) was a medium-sized endowment established in the late 1970s through the hard work of several local families. The vision of the ACCF was to be a comprehensive center for philanthropy in the greater Arbor City region. ACCF had a fund balance (known collectively as “the Fund”) of just under $240 million. The ACCF board of trustees had appointed a committee to oversee investment decisions relating to the foundation assets. The investment committee, under the guidance of the board, pursued an active risk-management policy for the Fund. The committee members were primarily concerned with the volatility and distribution of portfolio returns. They relied on the Value-at-Risk (VaR) methodology as a measurement of the risk of both short- and mid-term investment losses.

The questions in part (A) of the case direct the students to analyze the risk inherent in both one particular asset and the entire ACCF portfolio. For this analysis the students need to calculate daily VaR and monthly VaR values and interpret these figures in the context of ACCF’s risk management.

In part (B) the foundation receives a major donation. As a result the risk inherent in its portfolio changes considerably. The students are asked to evaluate the risk of the fund’s new portfolio and to perform a portfolio rebalancing analysis.

Number of Pages: 4

Extended Case Information

Teaching Areas: Finance, Non Profit, Statistical Methods

Teaching Note Available: Yes

Geographic: Midwest, United States

Industry: Not-for-Profit Foundation

Organization Name: Arbor City Community Foundation

Organization Department: Investment Committee

Organization Size: Small

Year of Case: 2010