Investment Policy Statement

An IPS functions as the governing rulebook for a family's investment program. It translates abstract goals — preserving wealth across generations, funding a foundation, supporting family liquidity needs — into concrete written parameters that guide every portfolio decision. Because family offices often involve multiple stakeholders across generations, having agreed-upon rules in writing prevents disputes and keeps managers accountable. The IPS is a living document, typically reviewed and updated regularly rather than filed away after initial drafting.

A well-constructed IPS commonly covers the family's investment objectives, time horizon, risk tolerance, target asset allocation, constraints (such as excluded industries or liquidity minimums), and the process for approving exceptions. It may also define how performance will be measured and who has authority to make which decisions — questions that connect directly to the work of the investment committee. Families often develop the IPS as part of the broader work of defining family office purpose.

A concrete example: a three-generation family with two operating businesses might write an IPS that specifies a minimum cash reserve equal to two years of family expenses, prohibits concentrated positions exceeding a certain share of the portfolio, and requires investment committee approval for any single commitment above an illustrative threshold. These rules protect against impulsive decisions during volatile markets.

A common confusion is treating the IPS as a one-time compliance exercise. In practice, it is most valuable as a communication and governance tool — a shared reference point that keeps advisors, family members, and staff aligned over time. Drafting and maintaining an IPS involves qualified legal and financial professionals.