Case Detail

Case Summary

Arbor City Community Foundation: Executive Education Version

Case Number: 5-310-503, Year Published: 2010

HBS Number: KEL588

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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 Illinois 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.

In its report for the investment committee, the ACCF risk analytics team recommended the daily VaR at 95% confidence as a measure for short-term risk and reported the corresponding numbers. It is now the task of the investment committee to interpret these figures. The case questions guide the executive students to a critical evaluation of both the reported VaR figures as well as of the VaR methodology.

Learning Objectives

Understand the concept of value at risk (VaR); interpret the results of VaR calculations; evaluate the appropriateness of VaR calculations; critical discussion of the VaR methodology.

Number of Pages: 5

Extended Case Information

Teaching Areas: Finance, Non Profit, Statistical Methods

Teaching Note Available: Yes

Geographic: United States

Industry: Not-for-Profit Foundation

Organization Department: Investment Committee

Organization Size: Small

Year of Case: 2010