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We view investment policy as the combination of strategic
and tactical choices that define the framework within which
the client's assets are managed. Properly designed, it addresses
all of the ingredients of the investment process, starting
with a definition of objectives and ending with a methodology
for tracking and evaluating success.
- An Investment Policy defines what we are trying to achieve;
- identifies the specific choices that have been selected
from those that are available;
- specifies areas in which asset managers are to be given
latitude and areas in which they are constrained;
- establishes how the process will be managed; and
- states the parameters that are to be considered in judging
success.
It is important to point out that investment strategy and
policy are dynamic. While they serve as an important point
of departure and as compass points in continuing investment
management and fiduciary activity, they must be scrutinized
regularly to validate their relevance as the client's needs
and life circumstances evolve.
:: Need For Investment Policy
The need for an investment policy arises in many circumstances,
especially when the client's assets have become large enough
to make feasible the pursuit of multiple objectives that are
focused around different time frames and that require tradeoffs
among choices.
Each set of circumstances offers its own range of challenges.
Some examples:
-
Sudden Wealth
-
Unplanned Wealth
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Sustained Wealth
-
Fiduciary Responsibility
:: Components Of Investment Policy
A comprehensive investment policy will contain the following
steps and components:
- A thorough understanding of the needs
of the client.
- Unambiguous and realistic investment objectives.
- If needed, a logical segmentation
of assets into separate portfolios that are aligned with
specific objectives.
- For each sub-portfolio, an asset allocation
that is appropriate for the objectives for that portfolio.
- For each sub-portfolio, investment
styles that are deemed suitable.
- For each portfolio, investment managers
and benchmarks that will be used to judge performance.
- A framework for governance of
the investment process.
- A methodology for reporting
to the client.
Simply addressing these issues will be of benefit. Clear
objectives, a sound rationale for asset allocation and careful
consideration of alternatives by themselves will serve most
investors well.
:: Steps In The Investment Process
- Understanding the Needs of the Client
- Defining Investment Objectives
- Analyzing Tax exposure
- Assessing Risk tolerance
:: Selecting Investment Management Styles
Strategically, the balance between "value" and
"growth" chosen by the investor should reflect the
client's investment objectives, time horizon, and criteria
for success. To accommodate the range of preferences, we manage
portfolios that are exclusively "value"-oriented
or that incorporate a "growth" component.
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