In an increasingly complex investment environment, trustees are expected to balance long-term objectives with sound governance, regulatory requirements and prudent risk management. One of the most effective tools available to support this responsibility is through an Investment Policy Statement (“IPS”).
While often viewed as a compliance document, a well-constructed IPS should be much more than a box-ticking exercise. It serves as the foundation of an investment strategy, providing a clear framework for decision-making and helping ensure consistency through changing market conditions.
What is an Investment Policy Statement?
An Investment Policy Statement is a formal document that outlines the objectives, constraints and governance arrangements for an investment portfolio. It acts as a roadmap for trustees, investment committees and advisers, setting out how assets should be managed to achieve agreed outcomes.
Typically, an IPS will define:
- Investment objectives and target returns
- Risk tolerance and risk management parameters
- Strategic asset allocation guidelines
- Liquidity requirements
- Permitted and prohibited investments
- Environmental, Social and Governance (ESG) considerations
- Roles and responsibilities of trustees, advisers and investment managers
- Monitoring and reporting requirements
By documenting these elements, trustees can ensure that all stakeholders share a common understanding of the investment strategy and the principles that underpin it.
Why is an IPS Important?
The greatest value of an IPS lies in its ability to provide discipline and clarity.
Markets move in cycles and periods of volatility can create pressure to make reactive decisions. An agreed investment framework helps trustees remain focused on long-term objectives rather than short-term market noise.
An IPS also strengthens governance. It demonstrates that investment decisions are being made within an agreed structure, supported by clearly documented objectives and processes. This can be particularly valuable when trustees change over time, as the IPS provides continuity and preserves institutional knowledge.
For pension schemes, charities, trusts and foundations, a robust IPS can also support transparency and accountability, ensuring investment decisions remain aligned with the organisation's purpose and obligations to beneficiaries.
What Does Good Practice Look Like?
An effective IPS should be specific enough to provide guidance while retaining sufficient flexibility to adapt to changing circumstances.
Good practice includes:
- Clearly defined objectives: Trustees should articulate exactly what the portfolio is expected to achieve, whether that is income generation, capital preservation, inflation protection or long-term growth.
- Appropriate risk parameters: Risk should be quantified wherever possible. This may include acceptable levels of volatility, concentration limits or liquidity constraints.
- Alignment with beneficiary needs: The investment strategy should reflect the time horizon, spending requirements and overall purpose of the trust or pension arrangement.
- Defined governance processes: Meeting schedules, reporting requirements, manager review procedures and decision-making authorities should be clearly documented.
- Regular monitoring: Performance should be assessed against agreed benchmarks and objectives rather than short-term market movements.
How Often Should an IPS Be Reviewed?
A common misconception is that an IPS can be drafted and then left untouched for years.
In reality, trustees should review the document regularly, typically at least annually, to ensure it remains aligned with the organisation's objectives and circumstances. A review should also be triggered by significant events such as:
- Changes in trustee membership
- Material shifts in financial circumstances
- Regulatory developments
- Changes in beneficiary requirements
- Significant market events
- Alterations to investment objectives or risk appetite
The goal is not necessarily to make changes each year, but to confirm that the document remains fit for purpose.
Are There Alternatives?
While an IPS is often considered best practice for trustees, similar governance frameworks are used across other sectors.
Law firms acting as professional trustees or executors may adopt investment governance memoranda or fiduciary oversight frameworks to document investment principles and decision-making responsibilities.
Independent Financial Advisers (IFAs) frequently utilise client suitability reports, investment mandates and centralised investment propositions to establish agreed objectives and risk parameters for private clients.
Pension providers and pension scheme operators often maintain Statements of Investment Principles (SIPs), governance policies and default investment strategy documents that fulfil a similar function by documenting investment objectives, risk management approaches and oversight arrangements.
Although the terminology may differ, the underlying principle remains the same: clearly documenting investment objectives, responsibilities and decision-making processes helps improve consistency, governance and client outcomes.
Conclusion
Whether overseeing a pension scheme, family trust, charitable foundation or other fiduciary arrangement, trustees face increasing scrutiny and complexity. A thoughtfully prepared Investment Policy Statement provides a valuable framework for navigating these challenges, ensuring investment decisions remain disciplined, transparent and aligned with long-term objectives.
For investment managers, it also provides an important reference point, helping us understand each client's objectives, risk parameters and governance expectations so that portfolios can be managed consistently and with purpose. Ultimately, a strong IPS is not simply a governance document; it is an essential tool for protecting beneficiaries' interests, supporting effective stewardship and promoting a more collaborative relationship between trustees and their investment manager over time.
- Tim Shallcross, Head of Marketing, Sales and Business Delivery
The information in this article is provided for general informational purposes only and does not constitute tax, legal, or financial advice. It should not be relied upon as a substitute for professional advice tailored to your individual circumstances. Tax rules and regulations may vary by jurisdiction and are subject to change. You should always seek advice from a qualified professional before making any decisions based on the information contained in this article.