Investment Policy Statement (IPS)

An IPS translates a family's financial goals and constraints into explicit, enforceable rules. It answers questions such as: What is this money for? How much volatility is acceptable? What asset classes are permitted or prohibited? How will performance be measured, and against what benchmarks? Who has authority to make which decisions? By committing answers to paper, the IPS reduces the risk that short-term emotions or adviser turnover cause the portfolio to drift from its intended purpose. The topic is explored in depth at /investment-policy-statements.

For families with substantial wealth, an IPS often covers asset allocation targets and allowable ranges, liquidity requirements, responsible-investment guidelines, and the process for selecting and terminating external managers. It may also define the role of an investment committee and specify how often the policy itself will be reviewed.

A hypothetical: a family foundation's board adopts an IPS specifying that the portfolio must maintain enough in liquid assets to cover two years of planned grants, that no single manager may represent more than a defined percentage of total assets, and that rebalancing will occur whenever an asset class drifts beyond a specified band. These rules protect the foundation from reactive decision-making during market stress.

A common confusion is treating the IPS as a one-time document. In practice it should be a living reference, reviewed at least annually and updated whenever the family's circumstances, goals, or governance structure changes materially. A qualified investment adviser and, where legal provisions are involved, an attorney should be engaged in its drafting and revision.