Investment policy statement
An investment policy statement converts an investor's objectives, constraints and governance arrangements into a durable framework for portfolio decisions, oversight and accountability.
Definition
An investment policy statement (IPS) is a governing document that records an investor's objectives, risk parameters, liquidity needs, time horizon, constraints, strategic asset allocation, decision authority and monitoring process.
Purpose
An IPS separates durable policy from short-term market reactions. For a family office, it can reconcile the needs of multiple entities, generations and spending commitments while defining what remains outside the pooled portfolio. It also provides a basis for selecting managers, evaluating performance and identifying decisions that require family or fiduciary approval.
Core components
Objectives
- Return requirement
- Risk tolerance and capacity
- Time horizon
Constraints
- Liquidity and distributions
- Legal and tax considerations
- Concentration and values
Portfolio rules
- Strategic allocation
- Ranges and rebalancing
- Benchmarks and reporting
Governance
| Actor | Typical authority | Control question |
|---|---|---|
| Owners or fiduciaries | Purpose, risk and approval of policy | Who has the legal authority to set objectives? |
| Investment committee | Oversight, allocation and exceptions | How are conflicts and votes handled? |
| Chief investment officer | Implementation within delegated limits | What requires escalation? |
| External managers and custodian | Mandated execution and asset servicing | How are assets, fees and performance verified? |
Implementation and review
- Inventory: consolidate assets, liabilities, cash flows, entities and existing mandates.
- Translate: turn family objectives into measurable risk, return and liquidity requirements.
- Approve: document authority, strategic allocation, limits and exceptions.
- Implement: align mandates, custody, reporting and rebalancing procedures.
- Review: reassess after material family, market, legal or spending changes—not merely after poor performance.
Related concepts
Sources and further reading
View sources and editorial notes
- CFA Institute, portfolio management and investment-governance resources.
- Global Investment Performance Standards, performance presentation standards.
- Institutional-investor and fiduciary guidance applicable in the relevant jurisdiction.
Editorial note: An IPS is a governance instrument, not a guarantee of performance. Its legal effect and fiduciary requirements depend on the investor, entities and jurisdiction.