Investment policy statement

The document setting objectives and constraints before anyone manages anything. Its real job is to be read during a drawdown, by someone no longer thinking clearly.

Where you will meet it

Investment policy statement appears in 8 learning outcomes on the CFA syllabus. A few of them:

• Set out the stages of the process for managing a portfolio
  CFA Level I · Portfolio Management

  “Planning establishes the investor's circumstances, writes the investment policy statement and sets the strategic asset allocation against capital market expectations.”

• Set out what good investment governance looks like and how governance shapes asset allocation decisions
  CFA Level III · Asset Allocation

  “Typically the governing body approves the investment policy statement and strategic asset allocation, while staff or an outsourced manager handle implementation within ranges.”

• Discuss how private clients differ from institutional ones and draft a suitable investment policy statement for a private client
  CFA Level III · Portfolio Construction

  “An investment policy statement for an individual sets out background and goals, return objective, willingness and ability to take risk, time horizon, liquidity, tax, legal and regulatory constraints, and unique circumstances such as concentrated holdings, then the strategic allocation, rebalancing and review.”

• Design a suitable currency management programme in light of market conditions and the portfolio's objectives and constraints
  CFA Level III · Derivatives and Risk Management

  “Start with the investment policy statement: base currency, return target, risk tolerance, liquidity for hedge settlements and instrument restrictions.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with I · Glossary