An institutional investment policy statement (IPS) is a document that outlines the investment objectives, constraints, and guidelines of an institution. It is a critical tool for ensuring that the institution’s investment portfolio is aligned with its overall goals and risk tolerance. An IPS can help to ensure that the institution’s investments are managed in a prudent and disciplined manner, and that the institution is meeting its fiduciary responsibilities to its stakeholders.
There are many different types of institutions that may need to create an IPS, including endowments, foundations, pension funds, and insurance companies. The specific content of an IPS will vary depending on the type of institution and its unique circumstances. However, all IPSs should include the following core elements:
1. Statement of investment objectives
2. Statement of investment constraints
3. Investment guidelines
Components of an Institutional Investment Policy Statement
A well-crafted IPS will clearly articulate the investment objectives of the institution. These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART). The IPS should also identify any investment constraints that the institution faces. These constraints may include regulatory requirements, liquidity needs, or donor restrictions. Finally, the IPS should provide investment guidelines that outline how the institution will achieve its investment objectives within the context of its constraints.
The investment guidelines in an IPS should be detailed and specific. They should cover all aspects of the investment process, including asset allocation, investment selection, and risk management. The guidelines should also be reviewed and updated regularly to ensure that they remain aligned with the institution’s evolving needs and circumstances.
Benefits of an Institutional Investment Policy Statement
There are many benefits to having a well-crafted institutional investment policy statement. These benefits include:
1. Improved investment decision-making
2. Reduced risk
3. Increased accountability
4. Improved communication with stakeholders
An IPS can help an institution to make better investment decisions by providing a clear framework for evaluating and selecting investments. It can also help to reduce risk by ensuring that the institution’s investments are diversified and aligned with its risk tolerance. An IPS can also increase accountability by providing a written record of the institution’s investment objectives and guidelines. Finally, an IPS can improve communication with stakeholders by providing them with a clear understanding of the institution’s investment philosophy and approach.
Conclusion
An institutional investment policy statement is a critical tool for any institution that manages investments. By providing a clear framework for investment decision-making, an IPS can help to ensure that the institution’s investments are aligned with its overall goals and risk tolerance. An IPS can also help to reduce risk, increase accountability, and improve communication with stakeholders.
If you are an institution that does not currently have an IPS, we encourage you to consider creating one. An IPS can be a valuable tool for helping you to achieve your investment goals and meet your fiduciary responsibilities.
