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What is an IPS?

IPS stands for Investment Policy Statement – and every Board/Trust should have one. 

It can also be an Investment Governance Policy (IGP). The IPS documents your investment policies, setting out the investment governance and management framework.

For clients who outsource the management of their investments, having an IPS can seem somewhat irrelevant as their focus moves to monitoring the results, say, quarterly and comparing the performance with other managers.

But in fact, the IPS is the key fund document irrespective of how clients implement their investments. And IPS’s need to be reviewed at least every three years – or more regularly if markets are subject to major changes.

A good IPS should include the following core components:

  • A clear description of the purpose of your overall objectives. For example, ‘to provide regular funds to meet the desired annual donations’;
  • A statement describing the roles of the different parties, including the delegation of certain decisions by the client. For example, ‘we are looking for clear recommendations on which stocks to invest in’ – a statement that would enable the client to properly hold the adviser accountable for the investment outcomes;
  • Quantification of the objectives including secondary objectives such as asset sector targets. Information on the trade-off between risk and return. For instance, ‘the client is targeting a real return of 4% per annum after fees and expenses over a five-year period’;
  • A statement of the clients’ investment philosophy and beliefs – i.e. the thinking that is going to drive the implementation of the investment strategy. For example, does the client believe that the investment strategy is best implemented by active or indexed investment management?
  • The strategic asset allocation including whether the client will make any tactical investment decisions. A table with the asset sectors, the benchmark allocations and the agreed ranges;
  • Statement of the different policies regarding the investment of the funds. For example, liquidity and cash flow management, including the currency management policy and the benchmark level of hedging for global shares together with whether or not the client wants to actively manage the currency exposure;
  • Statement on the mandate for each asset sector covering any investments which are not permitted. Even where all the assets are allocated to fund managers and managed in accordance with a fund’s prescribed mandate it is important for the client themselves to set broad limits for each asset sector;
  • Reporting, including how any breaches of the IPS will be reported. The frequency and content of reporting, including setting up a peer group to judge the overall performance.
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