Risk Reporting

We evaluate risk at the portfolio level at least quarterly as a part of our standard full service retainer. At a more sophisticated level, some clients employ us to perform Value-at-Risk computations for the total fund and component portfolios as a specialized service.  As part of this, we note whether the portfolio is meeting financial goals, and assess the probability of achieving these goals over the course of the next year. 

It is not unusual for market conditions to change and cause the amount of risk to be materially different from the level the client had intended.  A VaR analysis enables us to monitor the contribution to risk for each individual component and present this to clients quarterly.  The system currently used to execute this analysis is RiskMetrics.

At present, we have several clients using VaR as a risk measure in conjunction with the traditional risk measures. While the clients differ in the types of assets they are managing (e.g., operating assets, foundations, etc.), the one common element is that each client uses the VaR analysis as a tool to understand overall portfolio risk and, ultimately, to make better risk allocation decisions. VaR attempts to quantify risk in a relatively intuitive way. Traditional risk measures such as standard deviation may be difficult for board members to understand. Volatility expressed as a percentage around a mean is difficult for most people to conceptualize. VaR allows risk to be quantified succinctly as a dollar amount and associates a probability factor with it (95% or 99%, whatever the board or staff chooses).