What does your family office portfolio actually risk?

Ask most investors how risky their portfolio is and you will hear a feeling: comfortable, aggressive, a bit exposed to banks. A risk report replaces the feeling with a number you can put in dollars.

That number is usually value at risk, or VaR. It is easier to read than it sounds.

Value at risk, without the jargon

Value at risk answers one question: on a normal bad day, or a normal bad month, how much could this portfolio lose? A one-day 95% VaR of $1.5M on a $100M portfolio means that on 19 days out of 20 the loss should be smaller than $1.5M. On the twentieth day it may be larger.

That last sentence is the part people skip. VaR is a threshold, not a ceiling. It tells you where the bad days begin, not how bad the worst one can get.

Why the worst case matters more

The companion number is CVaR, sometimes called expected shortfall. It asks: when we do cross that threshold, what is the average loss? CVaR is always at least as large as VaR, and the gap between the two tells you how fat the tail is.

A portfolio with a modest VaR and a large CVaR is one that behaves well until it does not. For a family office that cannot afford to be forced to sell, that is the profile worth understanding first.

Turn percentages into dollars

A loss of 1.4% sounds small. The same loss on your actual portfolio is a sum of money, and it is the sum that decides whether you sleep. AVALON shows value at risk in dollars at your own portfolio size, so the figure on the page is the figure on your statement.

What to do with it

Read the VaR, then read the worst case, then ask the next question: where is the risk coming from? Often a handful of positions or one sector carry far more of the risk than their share of the capital. That is where a report earns its keep.

This article is for education and is not investment advice.