Investment Committee Research Articles

Wilson Family Foundation

An up-and-coming staffer at a small family foundation was considering whether to recommend a corporate bond investment to the foundation's investment committee. Her exploration was inspired by an article that identified some attractive corporate bond investments, and she was examining the merits of specific bond issues from Allegiant Travel, GameStop, and Western Union. Information is provided that would support a variety of bond pricing analyses, with a focus on uncovering possible mispricing and the drivers of that mispricing. Excerpt UVA-F-1899 Feb. 28, 2020 Wilson Family Foundation Janet O'Brien had been working in the family office of a central Virginia family-owned business for over five years. Her initial responsibility had been to evaluate proposals that came to the family's charitable foundation, the Wilson Family Foundation (the Foundation), and make recommendations as to which proposals most aligned with the Foundation's objectives and, at the same time, seemed most likely to achieve stated goals. By late 2018, however, she was helping others in the office identify investments for the Foundation's assets. While most of the Foundation's assets were managed by outside professionals, about $ 20million was managed in-house—typically invested in equities, government securities, or corporate bonds. The Foundation tended to adjust its holdings infrequently, and typically held investments for at least a year, and often much longer. The investment committee comprised two family members and the foundation's executive director. On December 21, 2018, O'Brien was scanning headlines and came across a piece in U.S. News and World Report that identified seven corporate-bond investments that professionals believed would make good choices for 2019. Of those seven investments, she was most intrigued by possible investments in the bonds of three companies: Allegiant Travel, GameStop, and Western Union. Having identified specific bonds issued by these companies that the Foundation might wish to hold, her next task was to evaluate each bond's attractiveness and select which, if any, to recommend to the investment committee. . . .

Summit Partners and RoboSoft, LLC: Mezzanine Debt Investment

In February 2013, John Carroll and Alexander Whittemore, both managing directors at Summit Partners (Summit), are considering an investment in RoboSoft, LLC (RoboSoft), a provider of data-center automation, business intelligence, and security software solutions, primarily for the IBM i operating system. Summit had previously invested in RoboSoft, and did well when it exited the company in 2007. Over the ensuing years, Summit had followed RoboSoft and was considering a second investment in the company when it was put up for sale again in late 2012. This time, Summit planned to invest $103.6 million from its growth equity fund and $43.9 million from its subordinated debt fund to buy out the company. This case is designed to introduce students to mezzanine investments. Because the deal involves both an equity and a subordinated debt investment, students can compare the investment considerations and return expectations of both types of investors. The case contains the actual deal team's investment memorandum summarizing the merits of the RoboSoft investment. The students are asked to qualitatively evaluate the potential benefits and risks of the investment from the perspective of a debt investor and an equity investor, and to quantitatively calculate the internal rate of returns (IRRs) and cash-on-cash returns (CoCs) of Summit's equity and subordinated debt fund investments. This case is appropriate for classes that survey private equity investments, or for corporate financing classes that wish to compare the risk and return of equity and debt investments. It is assumed that students have taken valuation courses and understand residual equity cash flow valuation methods. There are Excel files—one for students, one for instructors—to support analysis of this case. Excerpt UVA-F-1845 Rev. Apr. 16, 2020 Summit Partners and RoboSoft, LLC: Mezzanine Debt Investment In late February 2013, John Carroll and Alexander Whittemore, both managing directors of Summit Partners (Summit), were finishing a memorandum to the investment committee (IC) summarizing the merits of an investment in RoboSoft, LLC (RoboSoft) (Exhibit 1). The company was a provider of data-center automation, business intelligence, and security software solutions, primarily for the IBM i operating system (IBM i). As they discussed the situation, Carroll and Whittemore were reminded just how old this technology was. The precursor of the IBM i, the System 34/36/38, was developed in the 1970s, followed by the AS/400 in 1988—all before the internet, PCs, and cell phones became common household items. Although IBM continued to update the series, new operating systems had entered the market (e.g., Unix, Linux, and Windows) and began to erode its market position. The same issue had been a concern when Summit originally invested in RoboSoft in 2005. That investment, however, had worked out well and generated a 5x times; return for Summit's growth equity fund when the business was sold to its current owners, Adison Partners (Adison), in September 2007. In November 2012, Adison engaged Richmond Advisors to begin a new process for selling the company. After selling the business to Adison in 2007, Summit had maintained its relationship with the company and thought highly of the management team. As a result, Summit reviewed the investment again in this sale process and decided to put in a first-round bid for RoboSoft in January 2013. That bid had gotten Summit through the first round, and second-round bids were due in a few days. This time, the firm was contemplating a potential $ 43.9 million investment from its subordinated debt fund and a $ 103.6 million investment from its growth equity fund. Some of the same concerns Summit had faced with its earlier investment—possible obsolescence of the iSeries and RoboSoft's relatively slow organic growth—remained issues now. Additionally, investing money for a second time in the same company was likely to draw special scrutiny from the IC. . . .

Managing a Shariah-Compliant Capital Protected Fund through Turbulent Times

The case examines the performance and challenges faced by the Meezan Capital Protected Fund (MCPF) ensuing from the global financial crisis of 2008. The MCPF launched in May 2008 was the first-ever Shariah-compliant capital protected fund (CPF) offered in Pakistan targeted at conservative investors seeking principal protection along with upside exposure to equities through Shariah-compliant products and securities. The case is based on the scenario, the fund manager, Farhan Lakhani, is facing in early July 2009 following the colossal decline in stock markets crushing investor confidence in the financial system. Unlike equity funds, which had experienced an unprecedented drop in value during this period, MCPF had not only preserved its capital but also managed to generate a small positive return of over 1 per cent in terms of net asset value. Farhan sets out to capitalize on the extraordinary opportunity created by the financial crisis for CPFs to carve out a permanent space among an assortment of funds to mitigate risk for investors with low-risk appetite. He has to carefully review and analyse some of the key strategic choices to enhance the fund’s returns to meet investor expectations as equity markets recover from their historic lows; share his recommendation with the investment committee in two days.

Millat Tractors Limited: A Shariah-compliant Investment Opportunity

The case is based on the investment decision faced by the fund manager of Pakistan Islamic Pension Fund (PIPF), Manal Iqbal, at a leading asset management company, MCB Arif Habib Savings and Investment Limited (MCBAH). In early April 2015, Manal was asked by the chief investment officer of the company to evaluate Millat Tractors Limited (MTL) as a potential investment for PIPF to gain exposure to the agricultural sector of Pakistan. She directed her research team to prepare a valuation report for the MTL stock and reflected on the strategic position of her pension fund for the investment committee meeting on 27 April 2015.

The Panera Bread LBO

This case considers the buyout of Panera Bread from the perspective of a private equity fund. In early 2017, KLG Managing Director Tom Denning is considering a leveraged buyout of Panera Bread, a rapidly growing fast-casual restaurant company. A surprising Bloomberg News story signals that the deal process is broadening and KLG will have to act quickly if it hopes to buy Panera Bread. Students assume the role of Tom Denning as he prepares an investment recommendation for KLG's investment committee. In doing so, students are required to consider a very large and expensive investment. Students are challenged to create an investment recommendation by performing due diligence, determining additional questions to ask, and pricing a buyout bid that incorporates an optimal capital structure and meets KLG's return requirements. The Panera Bread case is designed to give students insight into the private equity investment process.

The Effect of Investment Committee on the Financial Sector Performance of Saudi Financial Market in View of Vision 2030: A Panel Data Approach

The investment committee is primarily a decision-making entity that aims to implement investment decisions taken by the company. In the framework of the powers conferred upon it by the board, the importance of this committee is highlighted and as such, in the present study, the primary aim is to examine the effect of investment on Saudi financial sector, an examination that is the first of its kind. The investment variable was measured by investment committee characteristic including, size, independence, meeting, commitment and allowance for session attendance. The study data was gathered from the annual reports of the financial firms spanning from 2014 to 2017. Panel data was used to conduct the hypotheses testing concerning the relationship among the variables of the investment commitment and the performance of the financial firms. Based on the findings, investment committee size and investment committee independence positively and significantly related with the performance of the firms. This study has several contributions to literature, particularly concerning information about the importance of investment committee. In addition, this study is clarified our understanding concerning best practices of corporate governance structure existing in Saudi financial listed companies.

Applying Behavioral Finance to Investments: The Existence and Importance of 'Investment Tribes'

Investment organizations are complex to understand because decisions are the aggregation of multiple individuals who influence the process. This applies to organizations that apply both quantitative and qualitative investment approaches because the first step in a quantitative approach is still a qualitative statement of the investment hypothesis that is then formalized by the models. Increasingly, finance practice is starting to incorporate behavioral finance insights and recognize that individuals are not “rational utility maximizers”, but rather complex psychological beings that can exhibit non-traditional behaviors. Kahneman-Tversky (KT) introduced this notion of individuals being “humans” and not “econs” but made broad generalizations about behaviorally affected decisions (BADs) and did not provide a methodology to examine individual biases. A technique has been proposed to use KT’s questions to provide individual behavioral diagnostics and previous research demonstrated dramatic differences within and across groups based on age, gender and financial literacy, especially for gambles based on prospective gains and losses. This paper is a case study of a single asset management company that uses a mix of quantitative and qualitative investment techniques, driven by five decision makers with equally weighted votes in the final decision. In addition to demonstrating that each individual in the investment committee is unique and providing individual diagnostics that show that age, gender and education need not lead to a particular behavior, this paper highlights the fact that organizations have “investment tribes”; namely, that there are groups of individuals who appear to exhibit similar risk tendencies for gambles involving gains or losses. These tribes can influence and impact decision-making. Quantifying and making transparent the existence of these tribes could improve decision-making. This case study can be helpful for investment firms allowing them to become aware of potential biases, and also for asset owners that delegate decisions to third parties, as it allows them to understand how the investment firms they delegate to might behave when they experience drawdowns.

Investment Committee, Corporate Cash Holdings and Corporate Life Cycle

AbstractWe investigate the association between voluntary formation of board investment committee (IC) and corporate cash holdings of nonfinancial firms over the corporate life cycle stages for a large sample of Gulf Cooperation Council firms during 2005–2016. We find that IC increases corporate cash holdings in growth and maturity stages of firm, compared to introduction, shake‐out, and decline stages. These results have important implications for investors, policy makers, and regulators. Our findings are robust to various econometrics specifications.

African Bank Investment Ltd (ABIL): a South African corporate governance failure

Subject area The case on ABIL deals with the important issue of corporate governance, and particularly the crucial role that the board of directors plays. It highlights the complex issue institutional investors face when trying to assess the strength of a board and the quality of information and disclosure. The case is set in South Africa which is an emerging market. Study level/applicability The case targets MBA students and can be taught as part of a corporate governance or sustainable and responsible investment module or course. The case is aimed at both local and international students as the case deals with corporate governance principles that are applicable to both audiences. Where necessary, the case provides information to guide international audiences. Case overview The teaching case is set on 6 August 2014 when Ian Matthews, the Head of Equities at a South African Asset Manager, BG Wealth, gets a call while on leave. The call is from his boss, chief investment officer, Deryck Medley, informing him of the negative trading update and asking him to come back to prepare for an emergency investment committee that afternoon. The case traces Matthews’ day as he reviews the research reports BG Wealth had put together on ABIL over the previous 15 months. Matthews also recalls the process the investment team went through internally before finally deciding to invest in the company. The case highlights not only the corporate governance failures of ABIL but also the lack of consideration given to ESG factors by BG Wealth. Expected learning outcomes The case’s primary teaching objective is to highlight the importance of corporate governance. The case provides detailed insights into the area of corporate governance through the analysis of a corporate failure. Through this teaching case, the students will follow the real-life events that led to the collapse of ABIL. It is intended that the students will be forced to deal with a complex situation and will be required to develop specific solutions to the issues raised. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code CSS 1: Accounting and Finance.

Teegolf Company: To Exit or Not to Exit—Team 1

Kris Alexander is a newly appointed partner at the private equity firm Kohlberg & Co. Alexander is preparing an exit proposal for one of Kohlberg's portfolio companies, the TeeGolf Company. Alexander believes that TeeGolf has a great opportunity of selling for a purchase price that would achieve a return equal to or greater than the firm's target IRR of 25%. However, Alexander was concerned about the viability of the sale. Specifically, he wondered: would strategic buyers, who would pay premiums to financial sponsors, actually be interested in this business? How would the firm negotiate amongst potential buyers if several submitted bids? What if there was only one buyer interested? Had Kohlberg's valuation accounted for a potential recession? How should he account for the investment banking adviser fees in his recommendation to sell? To answer these questions, students will be required to evaluate different exit strategies from multiple perspectives, understand how to work with a leveraged buyout analysis, a discounted cash flow, and how to add in the effects of synergies. A negotiation exercise between Kohlberg and two potential buyers, private equity firm Leonard Green Partners and a strategic buyer GoGolf, can support the learnings around asymmetric information, ZOPA, and BATNA.This case works well in a module covering firm valuations and financial negotiations. It would complement the HBS note on negotiations and cases such as Kelly Solar and Wrigley/Mars. Excerpt UVA-QA-0894 Rev. Aug. 23, 2018 TeeGolf Company: To Exit or Not To Exit Team 1 As Kris Alexander, a newly appointed partner at the private equity (PE) firm Kohlberg & Co. (Kohlberg), walked out of the firm's Q4 2016 Investment Committee (IC) meeting, he pondered which Kohlberg portfolio company would be best to sell in the upcoming year. The Kohlberg IC members were pleased with the performance of the acquisitions they had made over the last few years—many of which had two or more years remaining before the firm's planned exit. However, the IC agreed that there was a potential opportunity now to sell some of its investments as the markets were riding at historic highs and the US economy was nearing its longest recession-free streak. The IC had tasked Alexander with presenting an exit proposal for one of its portfolio companies. Specifically, the IC was seeking a company that: (1) had the most to gain in an inflated market (or the most to lose in a recession), (2) had already fully realized any strategic changes or synergies Kohlberg had planned, (3)could be sold in an expedited sales process, and (4) could garner quick interest from strategic and financial buyers. These were all required conditions in order to make an early exit from a portfolio company at this stage. Alexander and his team analyzed their current portfolio companies against the IC criteria and presented their choice, TeeGolf Company (TeeGolf). Alexander strongly believed that TeeGolf had the greatest probability of meeting all four conditions, although it would not be certain until initiating the sales process. . . .

Teegolf Company: To Exit or Not to Exit—Team 2

Kris Alexander is a newly appointed partner at the private equity firm Kohlberg & Co. Alexander is preparing an exit proposal for one of Kohlberg's portfolio companies, the TeeGolf Company. Alexander believes that TeeGolf has a great opportunity of selling for a purchase price that would achieve a return equal to or greater than the firm's target IRR of 25%. However, Alexander was concerned about the viability of the sale. Specifically, he wondered: would strategic buyers, who would pay premiums to financial sponsors, actually be interested in this business? How would the firm negotiate amongst potential buyers if several submitted bids? What if there was only one buyer interested? Had Kohlberg's valuation accounted for a potential recession? How should he account for the investment banking adviser fees in his recommendation to sell? To answer these questions, students will be required to evaluate different exit strategies from multiple perspectives, understand how to work with a leveraged buyout analysis, a discounted cash flow, and how to add in the effects of synergies. A negotiation exercise between Kohlberg and two potential buyers, private equity firm Leonard Green Partners and a strategic buyer GoGolf, can support the learnings around asymmetric information, ZOPA, and BATNA.This case works well in a module covering firm valuations and financial negotiations. It would complement the HBS note on negotiations and cases such as Kelly Solar and Wrigley/Mars. Excerpt UVA-QA-0895 Rev. May 24, 2018 TeeGolf Company: To Exit or Not To Exit Team 2 As Kris Alexander, a newly appointed partner at the private equity (PE) firm Kohlberg & Co. (Kohlberg), walked out of the firm's Q4 2016 Investment Committee (IC) meeting, he pondered about which Kohlberg portfolio company would be best to sell in the upcoming year. The Kohlberg IC members were pleased with the performance of the acquisitions they had made over the last few years—many of which had two or more years remaining before the firm's planned exit. However, the IC agreed that there was a potential opportunity now to sell some of its investments as the markets were riding at historic highs and the US economy was nearing its longest recession-free streak. The IC had tasked Alexander with presenting an exit proposal for one of its portfolio companies. Specifically, the IC was seeking a company that: (1) had the most to gain in an inflated market (or the most to lose in a recession), (2) had already fully realized any strategic changes or synergies Kohlberg had planned, (3)could be sold in an expedited sales process, and (4) could garner quick interest from strategic and financial buyers. These were all required conditions in order to make an early exit from a portfolio company at this stage. Alexander and his team analyzed their current portfolio companies against the IC criteria and presented their choice, TeeGolf Company (TeeGolf). Alexander strongly believed that TeeGolf had the greatest probability of meeting all four conditions, although it would not be certain until initiating the sales process. . . .

Safaricom 2018: The Emerging-Markets Payments Battle

The case discusses the decision of a hypothetical London-based hedge fund manager, Greg Rubin, who manages a fund primarily investing in emerging and frontier markets to decide whether to buy (or short) Safaricom, a Kenya-based telecom and financial services company that became globally known more than a decade ago (2007) for its use of technology to facilitate payments via mobile phones. There was a real need in Kenya for a different system of payments and money transfers, given the large underbanked population (almost 80% lacking a formal bank account) and the widespread use of cash. M-Pesa, the system introduced by Safaricom was an astounding success and quickly achieved a dominant position in the Kenyan marketplace. Kenyans embraced the use of mobile phones to transfer money and pay bills. More than 10 years later, at the time of the case (March 2018), Safaricom's dominance is challenged by a series of missteps expanding abroad (e.g., to South Africa), increased competition at home, as well as the introduction of 3G and advanced smartphone technology. The case allows for an examination of the investment thesis for Safaricom and its valuation. This requires the analysis of payment systems and their evolution in frontier markets as well as the analysis of country/political risk, among others. It is the combination of an innovative company from a frontier market and the introduction of new technologies that make this case interesting (and challenging) to analyze—by no means an obvious decision for Rubin. Excerpt UVA-F-1843 Rev. Aug. 22, 2018 Safaricom 2018: The Emerging-Markets Payments Battle SAFCOM is one of the best companies this author has ever covered over a fairly long career as a financial analyst, yet it is also one of the most challenging to value, owing to the dual nature of its business—on the one hand, an increasingly commoditized telecom business, where SAFCOM continues to deliver growth above the industry average; and, on the other, a fast-growing financial services business with a positive growth outlook. —Renaissance Capital, October 2017 In March 2018, Greg Rubin sat on his hedge fund's trading floor in Mayfair, London, working on an investment memo he planned to present to fellow members of his investment committee later that day. The investment option on the table for Rubin's absolute return emerging market fund was Safaricom, a telecommunications and financial services company based in Kenya. Ever since the company had achieved extraordinary success with the launch of its mobile payments solution, M-Pesa, a decade earlier, Rubin had considered the company a viable investment option. Even so, he still had more information to digest on the prospects for economic growth within this region of Africa and potential threats to the business before making a final recommendation to his colleagues. . . .

The First Meat Sector IPO: Al Shaheer Corporation

This case examines the June 2015 decision of Muhammad Asad, a fund manager at Al Meezan Investment Management Limited, to participate in the Initial Public Offering (IPO) of Al Shaheer Corporation, a leading meat sector company of Pakistan. He was interested in increasing the exposure of the Meezan Islamic Fund (MIF) to the food sector, provided attractive risk-adjusted returns could be achieved. Based on the research team analysis and his own assessment, Asad had to decide whether or not to participate in the IPO book building process and the number of shares to bid for at each price level. Both Market Multiples and Discounted Cash Flow (DCF) valuation methods had yielded share value higher than the IPO floor price of PKR 43 per share which encouraged Asad to consider the investment opportunity. He also had to decide on the amount that he could allocate to the IPO on behalf of MIF. Asad had to prepare his recommendations on the IPO for presentation and approval by the investment committee in the upcoming meeting. He has asked you to conduct an independent analysis and valuation of Al Shaheer stock over the weekend and share your findings with him early Monday morning.

Short-Termism and the Asset Allocation Decisions of Defined Benefit Pension Plans

We examine the presence of short-termism in the asset allocation decisions of U.S. private defined benefit pension plans. We document an inverse U-shaped relationship between a plan’s allocation to fixed income securities and its funding ratio, centered on a 80% funding ratio, and show that the relationship is stronger among plans sponsored by companies in financial distress, and whose CFOs have accumulated a substantial amount of risky pension benefits. We then theoretically demonstrate that this relationship emerges from loss-averse preferences of the plan’s investment committee (supervised by the CFO), with respect to a 80% funding ratio. We additionally show that these preferences encompass both risk-shifting and risk-management behaviors, and as such allow us to explain two empirical features of U.S. defined benefit plans: a collapse in their average funding ratios over the past three decades, and the more recent shift toward fixed income securities in their allocation decisions. Assimilating these loss-averse preferences with short-termism, we conclude that plans without such preferences achieve a significant improvement in their funding ratios over the long-run.

The social and economic benefits of community transport in Scotland

An inquiry by the Scottish Parliament Infrastructure and Capital Investment Committee launched in 2013 found that there is a lack of evidence on the social and economic benefits of community transport (CT) in Scotland. This paper reports the outcome of research designed to identify the economic, social and health benefits generated by CT. Following a review of available literature on the benefits of CT, a primary research programme was carried out with five case studies from across Scotland. Findings confirm that CT is a critically important service providing cross-cutting benefits across a range of policy areas, including transport, health, social services and leisure, amongst others. It also plays an important role in tackling different types of inequality, an important issue on the policy agenda of many Governments.

Arbor City Community Foundation: Executive Education Version

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.Understanding the concept of value at risk (VaR); Interpreting the results of VaR calculations; Evaluating the appropriateness of VaR calculations; Critical discussion of the VaR methodology.

Arbor City Community Foundation (B): Managing Good Fortune

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. 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.Understanding the concept of value at risk (VaR); Calculating daily and monthly VaR by two different methods, the historical and the parametric approach; Interpreting the results of VaR calculations; Understanding the role of diversification for managing risk; Evaluating the impact of portfolio rebalancing on the overall risk of a portfolio.

Arbor City Community Foundation (A): The Foundation

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. 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.Understanding the concept of value at risk (VaR); Calculating daily and monthly VaR by two different methods, the historical and the parametric approach; Interpreting the results of VaR calculations; Understanding the role of diversification for managing risk; Evaluating the impact of portfolio rebalancing on the overall risk of a portfolio.

Paul Capital and Project U: Secondary Sales of Private Equity Stakes

At a time of market turmoil, a university investment manager wants to unload the school's entire private equity portfolio; yet no public market exists, so the assistance of a partner at a PE firm is sought. This case provides an introduction to a range of secondary transactions and the valuation challenges that arise. Excerpt UVA-F-1626 Rev. Oct. 10, 2011 PAUL CAPITAL AND PROJECT U: SECONDARY SALES OF PRIVATE EQUITY STAKES Fall 2008 was a period of unprecedented market turmoil. Day after day, the headlines reported large declines in stock prices as waves of selling hit the market. Following the bankruptcy of Lehman Brothers in September, the S&P 500 had declined more than 50% from its 2007 high. Hedge funds were hit with redemption requests, causing them to liquidate securities. Even the hallowed halls of academia did not escape the carnage. Following the lead of Harvard and Yale over the previous decade, university endowments had aggressively increased their allocations to private equity (PE) and other so-called alternative investments. While these investments had often produced impressive returns, the previously favorable view of the sector quickly soured. As the value of the investments fell, they could not be easily sold because no public market existed for them. Further, investors in PE funds faced prospective capital calls that required them to put up additional capital. With cash in short supply, universities and other limited partners (LPs), facing budget pressures and investment losses, looked to unload their stakes in private equity. It was in this context that Patrick Derry, a partner at Paul Capital, had been contacted in November 2008 by an investment manager at Rhodes University seeking to sell its $ 162 million commitment to private equity. Derry had a good relationship with the investment manager and knew that the endowment was an LP with high-quality interests in PE funds. Because of his relationship and Paul Capital's reputation, this would be an exclusive deal to purchase the entirety of the endowment's holdings, if agreement could be reached on terms. In November, the investment committee at Paul Capital had authorized proceeding with “Project U” and had given the go-ahead for the first phase of due diligence. In February 2009, with the first and follow-up phases of due diligence completed, Paul Capital was nearing completion of a final offer to present to the endowment's investment committee. After investing nearly three solid months of work on the deal, Derry recalled, “It's often difficult to truly judge the seller's motivation. In this case, given what happened in the fall, we felt pretty good about the university's need to sell, but all that can change once a seller sees the size of the discount.” . . .

A Primer for Investment Trustees: Understanding Investment Committee Responsibilities

A Primer for Investment Trustees: Understanding Investment Committee Responsibilities