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Investment Policy Statement (IPS): what to include and how to monitor it
An investment policy statement (IPS) sets out what a portfolio is for, how it may be invested and who decides. This section explains when a written policy is required, what each of its sections should say and how its clauses become rules that can be monitored.
Start with your audience: the legal duty behind a family office's policy, a trustee's policy statement, a charity's investment policy or a pension scheme's statement of investment principles differs, and so do the clauses that matter. The section guides follow the 12 sections of the Acclimetry IPS template; the clause library shows how common clauses are written so they can be tested.
Build an IPS with the IPS Builder
Clause library
Common policy clauses, how to remove their ambiguities and how each is tested, with a worked example computed by the engine.
"No more than 5% in any single issuer": how to write it, test it and evidence it
A single-issuer limit caps the share of the portfolio exposed to one issuer, adding every bond, share and deposit it stands behind.
"No more than 10% in any single security": how to write it, test it and evidence it
A single-security limit caps each instrument, not each issuer, so a company's shares and bonds are measured separately.
"No more than 20% with any one issuer group": how to write it, test it and evidence it
An issuer-group limit adds everything a portfolio holds under one ultimate parent: the parent's bonds, a subsidiary's covered bonds, a deposit with its bank.
"Equities between 40% and 60% of the portfolio": how to write it, test it and evidence it
An allocation range keeps one asset class between a floor and a ceiling.
"Rebalance when an asset class leaves its range": how to write it, test it and evidence it
This clause turns an allocation range into a trigger: when a class leaves its band, the portfolio is brought back.
"Hold between 2% and 10% in cash": how to write it, test it and evidence it
A cash range sets a floor for liquidity and a ceiling against cash drag.
"At least 25% available within 30 days": how to write it, test it and evidence it
A liquidity floor promises that a share of the portfolio can be turned into cash within a stated horizon.
"No more than 15% in illiquid assets": how to write it, test it and evidence it
An illiquidity cap limits the share of the portfolio that cannot be sold readily.
"Keep six months' spending in cash": how to write it, test it and evidence it
A spending reserve is written in money, not percentages: cash must cover a number of months of planned outgoings.
"Average credit quality of at least A-": how to write it, test it and evidence it
An average-rating clause sets a floor on the portfolio's weighted credit quality rather than on each bond.
"No more than 10% below investment grade": how to write it, test it and evidence it
A sub-investment-grade cap limits the weight of holdings rated below BBB-.
"Unrated bonds count as below investment grade": how to write it, test it and evidence it
This clause settles the question a credit floor leaves open: a bond with no rating counts as sub-investment grade.
"Portfolio duration within one year of the benchmark": how to write it, test it and evidence it
A relative duration limit keeps the portfolio's interest-rate sensitivity close to its benchmark's.
"No bond maturing after a stated year": how to write it, test it and evidence it
A final-maturity limit keeps every bond inside the horizon the policy plans for.
"No tobacco, controversial weapons or thermal coal": how to write it, test it and evidence it
An exclusion clause bars named activities from the portfolio.
"No investments in sanctioned countries": how to write it, test it and evidence it
A country prohibition bars holdings tied to the countries a policy lists.
"Only listed securities and regulated funds": how to write it, test it and evidence it
A permitted-universe clause allows only securities admitted to a public market and authorised funds.
"Derivatives only for hedging": how to write it, test it and evidence it
A hedging-only clause permits derivatives that reduce risk, not ones that add exposure.
"Derivative exposure no more than 10% of NAV": how to write it, test it and evidence it
A derivative exposure cap limits how much exposure contracts add relative to the fund's value.
"Borrowing only as a temporary overdraft up to 10%": how to write it, test it and evidence it
A borrowing clause usually sets two conditions: a size, such as 10% of the portfolio, and a nature, temporary and for liquidity only.
"Gross exposure no more than 150% of NAV": how to write it, test it and evidence it
A gross exposure cap limits the sum of long and short positions relative to net value.
"Net equity exposure between 0% and 50%": how to write it, test it and evidence it
A net equity band limits long equity exposure minus shorts and short futures, relative to NAV.
"Hedge at least 75% of US dollar exposure": how to write it, test it and evidence it
A hedge-ratio floor requires currency forwards to offset most of the portfolio's dollar assets.
"Foreign currency exposure no more than 30%": how to write it, test it and evidence it
A foreign-currency cap limits the share of the portfolio outside the base currency.
"No more than 25% in any one sector": how to write it, test it and evidence it
A sector cap limits the weight of any single industry sector.
"Emerging markets no more than 15%": how to write it, test it and evidence it
An emerging-markets cap limits exposure to countries the policy treats as emerging.
"No more than 20% in private markets": how to write it, test it and evidence it
A private-markets cap limits the share of the portfolio in unlisted funds and assets.
"Unfunded commitments no more than 30% of the portfolio": how to write it, test it and evidence it
An unfunded-commitment cap limits capital promised to private funds but not yet drawn, relative to the portfolio.
"No more than 25% of commitments in one vintage year": how to write it, test it and evidence it
A vintage limit spreads private-market commitments over time, so one year's conditions do not shape the whole programme.
"No more than 10% with any single counterparty": how to write it, test it and evidence it
A counterparty cap limits what the portfolio stands to lose if one bank or dealer fails: deposits, derivative valuations and other amounts owed.
"Securities lending no more than 20% of the portfolio": how to write it, test it and evidence it
A securities-lending cap limits how much of the portfolio is out on loan at any time.
"Hold at least 20 different issuers": how to write it, test it and evidence it
A minimum-issuers clause sets a floor on diversification by counting distinct issuers rather than weights.
"Top 10 holdings no more than 40%": how to write it, test it and evidence it
A top-ten cap limits concentration in the largest holdings together, catching a portfolio that respects every single-issuer limit yet leans on a few names.
"Annual turnover below 50%": how to write it, test it and evidence it
A turnover limit caps how much of the portfolio is traded in a year, usually to control costs.
"No active weight beyond plus or minus 5% of the benchmark": how to write it, test it and evidence it
An active-weight band keeps each group of the portfolio within a set distance of its benchmark weight.
"Across all family entities, no more than 10% in one company": how to write it, test it and evidence it
A family-wide concentration limit measures one company's share of everything the family owns, across trusts, holding companies and personal accounts.
"No more than 5% in the employer's own investments": how to write it, test it and evidence it
Most UK occupational pension schemes may hold no more than 5% of their resources in employer-related investments, and no employer-related loans.
"The committee reviews the policy every year": how to write it, test it and evidence it
A review clause is an obligation, not a limit: no position shows whether a committee met and decided.
"Managers confirm compliance with the guidelines each quarter": how to write it, test it and evidence it
A compliance certificate makes each manager state, every quarter, that the portfolio met its guidelines.
"Any breach is reported to the committee within three business days": how to write it, test it and evidence it
A breach-reporting clause sets a deadline for telling the committee, not a limit on the portfolio.