As an experienced professional in the field of trust management, I’ve come to understand the pivotal role an Investment Policy Statement (IPS) plays in guiding trustees, whether they are overseeing family trusts or charitable funds. In this article, I want to share my insights on what an IPS is, its critical components, and the steps involved in creating one. This knowledge is essential for trustees who aim to manage investments effectively.
An IPS is a strategic blueprint that outlines how a trust’s assets should be managed. It’s the foundation upon which all investment decisions are built, ensuring consistency and alignment with the trust’s objectives, even amidst market volatility and changing circumstances.
The creation of an IPS begins with a clear definition of the trust’s investment objectives. These objectives should be specific, measurable, and, most importantly, aligned with the trust’s overall purpose. Whether the goal is to generate income to support beneficiaries or to grow capital for long-term philanthropic endeavours, these objectives guide every investment decision.
Understanding the trust’s risk tolerance is another important aspect. This isn’t just about the financial capacity to bear risk but also involves considering the psychological comfort of trustees with market fluctuations. It’s about striking a balance between achieving investment objectives and maintaining peace of mind.
Asset allocation is where these considerations come to life. Deciding how to distribute the trust’s assets across various classes like stocks, bonds, real estate, and cash is a delicate process. This allocation should mirror the trust’s risk tolerance and investment objectives, balancing potential returns with the risk of loss.
Of course, an IPS isn’t complete without setting out investment guidelines and restrictions. These can range from ethical investment policies to liquidity requirements and legal constraints. They serve as guardrails, ensuring that all investment decisions stay within an agreed-upon framework.
A crucial, often overlooked part of an IPS is the performance monitoring and review procedures. Establishing benchmarks for performance evaluation and outlining the frequency and process for reviewing the investment strategy are essential. This ensures that the trust’s investments are continually aligned with its objectives and can adapt to changes in the trust’s circumstances or the financial markets.
In my experience, the development of an IPS is a collective and dynamic process. It starts with gathering comprehensive information about the trust, including its purpose, financial situation, and the needs of the beneficiaries. Setting clear, realistic objectives is the next step, followed by a thorough risk tolerance evaluation. The decision on asset allocation is perhaps the most complex, requiring a deep understanding of different asset classes and how they align with the trust’s goals and risk profile.
Our approach is always collaborative, transparent, and tailored to the unique needs of each trust. We believe in empowering trustees with the knowledge and tools they need to manage their investments effectively.
For trustees looking to develop or refine their Investment Policy Statement, I encourage you to reach out. Our team is well-equipped to provide the expertise and support you need. Contact us today for more information.
