Family offices are private wealth management advisory firms that serve ultra-high-net-worth investors. A key part of a family office’s operations is its investment policy statement. This document outlines the goals, guidelines, and procedures for how the family office will manage the investments under its oversight. It covers elements like risk tolerance levels, asset allocation targets, rebalancing policies, and governance mechanisms. Well-crafted investment policy statements help provide stability and continuity for a family’s financial legacy across generations.
Defining goals and investment horizons
The investment policy statement will clearly lay out performance expectations and target returns over various time frames like 1 year, 5 years, and 10+ years. This provides guardrails for investment decision-making aligned to the family’s overarching objectives.
Specifying asset allocation guidelines
The policy document will define long-term strategic asset allocation guidelines that determine what percent of investments should be in equities, fixed income, real assets, hedge funds etc. More tactical allocation ranges may also be provided for near-term flexibility.
Outlining rebalancing procedures
To ensure actual investment positions don’t deviate too far from policy targets, the statement will describe regular rebalancing procedures to buy and sell assets to get portfolios back to prescribed allocation levels.
Defining risk management expectations
In line with the family’s risk tolerance, the investment policy will outline acceptable levels of portfolio volatility and drawdown limits over varying time frames that investment managers need to abide by.
Explaining governance mechanisms
The policy statement specifies governance processes the family office will use to implement the guidelines like investment committee structures, manager selection criteria, review frequency, and benchmarking procedures.
A clearly-defined investment policy statement is a cornerstone document for family offices to prudently and effectively shepherd generational wealth. It provides continuity and discipline to investment strategy implementation over the long-term.