Integrated believes the Investment Policy Statement is the single most important step in investment success for our clients because it is the blueprint for their entire investment program. It establishes the infrastructure for all investment related activities. A written Investment Policy Statement supports the prudent expert rule and procedural prudence by clearly tying together time horizon and future liability requirements with investment management strategy.
This collaborative process helps Integrated and our clients to understand attitudes on the long-term economic climate, their income needs, desired asset allocation and degree of diversification, perceived risk tolerances, policy constraints, and other pertinent investment considerations. From the consensus opinion, an overall risk tolerance is developed for them.
The policy constraints agreed to in the development of a consensus play an integral role in the creation of the investment policy and the implementation of an investment strategy. Integrated evaluates constraints such as limitations or exclusions of particular securities, asset classes, investment styles, or particular investment vehicles (i.e. short selling).
Integrated evaluates our clients’ needs for liquidity, growth of assets, income, and preservation of capital. We balance these needs and develop an investment strategy that will maximize the probability of achieving objectives within the time horizon of our clients’ assets.
Working with our clients, Integrated develops the Investment Policy Statement to define investment goals and allowable risk levels, guidelines delineating allowable investments and prohibited transactions, benchmarks for evaluating performance, and service expectations for investment managers, other service providers and ourselves.
Key Components of the Investment Policy Statement:
- Role of the fiduciaries in the investment process.
- Responsibilities of the investment managers in the investment process.
- Responsibility of the custodian
- Investment objectives and goals of the fund.
- Acceptable asset classes.
- Asset allocation policy.
- Risk tolerance of the fund (liquidity, quality).
- Strategy to monitor results.
In summary, the written Investment Policy Statement is an important tool providing our clients with realistic targets for future investment performance and a means for judging the quality of the results. It creates accountability and defines proper process and procedures to assure that objectives and goals are met. For many of our clients, their constituents change over the years. The Investment Policy Statement remains a constant to them and serves as a valuable training tool for newly appointed decision makers. In addition, this document provides the investment manager with a clear understanding of the portfolio’s goals, objectives and guidelines. This information enables the manager to invest the assets in such a manner that he/she can fulfill his/her co-fiduciary responsibilities to the fund.