The Power of an Investment Policy Statement

The Power of an Investment Policy Statement: How an OCIO Can Guide You

The bedrock of any investment strategy is a well-defined plan. For organizations, this plan is often embodied in an Investment Policy Statement (IPS). An IPS outlines the blueprint for your investment decisions, but creating one can be a challenging task. That’s where an Outsourced Chief Investment Officer (OCIO) can provide valuable expertise. Below, we'll break down what an IPS is and how an OCIO can assist in its development.

Understanding the Investment Policy Statement (IPS)

At its core, an IPS is a strategic document that lays out the governing principles for your organization's investments. It clearly outlines your investment objectives, risk tolerance, time horizon, asset allocation strategy, unique circumstances, and guidelines for choosing investments. Furthermore, it spells out roles and responsibilities, communication processes, and the benchmarks used to evaluate performance.

An IPS is not a static document; rather, it is designed to evolve with your organization's needs and circumstances. Regular reviews and updates are crucial to ensure it remains aligned with your organization's goals.

The OCIO's Role in Developing an IPS

Crafting an IPS can be a complex process requiring deep knowledge of investments and finance. This is where an OCIO can offer invaluable assistance. Here's how:

  1. Understanding Your Needs: The OCIO will start by conducting a thorough assessment of your organization's financial situation, objectives, and risk tolerance. This understanding serves as the foundation for the IPS.
  2. Formulating the Strategy: Based on this understanding, the OCIO will help design a strategic asset allocation model for your organization, determining what mix of asset classes will best meet your objectives while aligning with your risk tolerance.
  3. Setting the Guidelines: The OCIO will help establish guidelines for selecting and evaluating investment managers and other investment opportunities. This includes defining performance benchmarks and setting criteria for ongoing due diligence.
  4. Establishing Roles and Responsibilities: The OCIO can help define the roles and responsibilities of various parties involved in the investment process, including your board members, staff, OCIO, and any other consultants or service providers.
  5. Communication and Review Process: The OCIO will also assist in outlining the communication and review process, defining how often the IPS will be reviewed, and under what circumstances it may be modified.

The involvement of an OCIO in developing an IPS doesn't end there. They can also play a vital role in implementing the policies defined in the IPS and regularly reviewing and updating it to reflect changes in your organization's circumstances or in the investment landscape.

In conclusion, an IPS is an integral tool for guiding your organization's investment decisions, and an OCIO can be a vital partner in developing and maintaining it. A well-crafted IPS, managed by an experienced OCIO, can steer your organization on a clear path to achieving its financial goals.

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