An IPS provides boards of directors, investment committees and the investment manager with a clear understanding as to their respective fiduciary responsibilities and guides each player in their decision making process. We encourage all institutional investors regardless of their size, mandate, or investment objectives to develop a clearly defined IPS.
The development of a comprehensive IPS hinges upon the inclusion of several critical components, such as:
- Defining the overall investment objectives of the institution
- Setting clear and concise risk parameters for the portfolio
- Identifying an asset allocation strategy that aligns with both the objectives and risk parameters
- Identifying any liquidity requirements and associated constraints
- Identifying return targets over a full market cycle
- Identifying the appropriate time horizon for the funds
- Clearly articulated performance benchmarks, reporting requirements and rebalancing strategies
- Defining and assigning the roles and responsibilities of all parties involved
- Identifying any unique considerations (investment restrictions/preferences)
- Predetermined frequency of IPS review
It is imperative that all parties affected by the IPS have a clear understanding of the document and are in agreement with its related content. Furthermore, the development and adherence to such a document which aligns with the institution's overall mandate is a sound approach to fulfilling ones’ fiduciary duty. A well defined IPS can assist fiduciaries with reducing personal biases and emotions in times of both market stress and exuberance.
Let the MP Wealth Advisory Team guide your organization through the IPS development process.