How Should a Family Office Write an Investment Policy Statement?
Short answer. Begin with the family's mission, values, and goals, then document how investment decisions will serve them. Set priorities such as preservation, growth, income, and risk, along with liquidity needs, asset allocation guidelines, decision authority, and review practices. The family, CIO, and governance body should agree on the policy and revisit it as circumstances change.
An investment policy statement puts the family's goals into written rules for managing capital. In my experience, the family should decide what it wants its wealth to do before setting allocation targets or choosing investments. The policy can guide decisions while reflecting the family's mission, values, time horizon, and resources.
Start With the Family's Priorities
Record the family's priorities for capital preservation, growth, income, taxation, risk management, and liquidity. These priorities can compete. For example, a family with illiquid holdings may need cash for expenses and commitments while seeking long-term growth. The policy should make those tradeoffs clear so investment decisions can be assessed against an agreed purpose.
Link the investment mandate to the family compass and governance rules. Describe where capital may be invested, how it should be deployed and protected, and how opportunities are ranked. A family focused on a narrow set of industries or assets may need guidance on concentration and liquidity. See creating a family compass and family office governance for related groundwork.
Define Authority and Guardrails
State who can recommend investments, who approves them, and which decisions belong to the family, CIO, investment committee, or board. Governance documents can clarify authority over portfolio allocation changes and explain how decisions are made during a dispute, a major loss, or a sudden change in family leadership. Include risk limits, ethical standards, conflict procedures, and reporting expectations.
The policy should give the investment team room to act within agreed boundaries. Explain how exceptions are managed and who records them. Set out how those exceptions are shared with the family. A family may choose a formal investment committee or another decision structure. Everyone should understand the process and how it fits the family's needs. Related guidance on the investment committee's role can help clarify oversight.
Choose Measures and a Review Process
Agree in advance on how the family will assess performance and risk. Set appropriate benchmarks for the portfolio and its major asset classes, and define the reporting the investment team must provide. Consistent measures make it harder to select a favorable metric after results are known. The family and board should agree with the investment team on the methods, especially when compensation depends on performance.
Assign responsibility for drafting and maintaining the policy. A CIO may prepare it, with input from family members and the CEO or governance body. Revisit the document on a set schedule and when the family's goals, holdings, or liquidity needs change. Keep an advisor's preferred strategy from becoming the family's mandate. Outside professionals can help analyze options; the family's objectives should guide the policy. For related reading, see how performance is measured and planning for liquidity needs.
Sources: How to Start a Family Office, The Single Family Office. Informational only, not financial, legal or tax advice.