Investment guidelines

Investment guidelines are the client’s rules for a mandate. They list permitted assets, allocation ranges, issuer and credit limits, duration bands, liquidity minimums and prohibitions. The term is standard in US mandates and common in UK asset management, where the monitoring team is often called guideline monitoring.

Guidelines are tested at two moments. Before a trade, the question is whether the order would breach them; after it, whether current holdings still comply. A US public pension’s standard-form agreement, for example, attaches its investment guidelines as an exhibit and asks the manager for a compliance certificate.

Each guideline needs a measurable form before it can return a result. “Average credit quality of at least A-” needs a rating scale, a split-rating rule and an unrated policy. See how that clause is tested and investment guideline monitoring.