Investment Policy Statement (IPS)
An investment policy statement (IPS) is a governing document that defines an allocator’s objectives, constraints, target allocations, and risk guidelines.
Allocator relevance: The rulebook behind mandate fit—explains what is allowed, how decisions are made, and how portfolios are managed.
Expanded Definition
IPS documents typically define return objectives, spending needs, liquidity constraints, asset allocation targets, rebalancing rules, permissible instruments, and risk limits. For institutions (endowments, foundations, pensions), IPS is central to governance and accountability. For family offices, an IPS-like document may exist but is less common; when it does, it is a strong signal of institutional governance.
IPS shapes manager selection and how quickly new allocations can be approved.
How It Works in Practice
Teams and committees use the IPS to evaluate opportunities, set pacing, and manage risk. When new strategies are introduced, they may require IPS amendments—often slowing decisions but improving consistency.
Decision Authority and Governance
The IPS is governance. Authority to modify it usually sits with an IC or board, and changes are typically deliberate and documented.
Common Misconceptions
- IPS is only a compliance document.
- IPS guarantees disciplined execution.
- IPS is identical across institutions.
Key Takeaways
- IPS defines constraints and the decision framework.
- It explains why some allocators cannot move quickly.
- IPS amendments often signal strategic shifts.