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The 'Investment Policy Statement'

Prudent investment practice demands that a suitable framework is applied to all investment decisions. The ‘Investment Policy Statement’ (IPS) is a set of rules to which we, as advisers, adhere religiously. It is the structure which by working within lessens risk and focuses on perhaps the key client expectation and demand – that investment capital is preserved.

 

This investment approach is particularly suited to trustees where they are often obligated to contract out the responsibility for portfolio management. By establishing the IPS at the outset this can be the basis of seeking proposals from prospective portfolio managers, and the basis of future measurement of performance and compliance on an ongoing basis.

 

The IPS takes a two-fold approach to portfolio design. ‘Top-down’ covers the issues of investment goals and objectives, diversification, quality of assets, risk management, custodianship.  Pursued by a thorough ‘bottom-up’ approach that addresses time horizons, risk profiling, liquidity, client needs analysis and education. Fitting together the two sets of demands then shapes the investment portfolio with its in-built structure and discipline.

 

Our strong counsel is that the IPS must always be the precursor to any investment recommendation as it sets out the parameters within which every investment decision is made. It then leads to a process that is applied and measurable in the future, ensuring the investment portfolio pursued is more than robust enough to withstand all phases of the investment cycle.