Section 6 of 12
Investment policy statement (IPS) section guide: strategic asset allocation
The strategic asset allocation section sets the long-term mix: a target weight for each asset class, with a minimum and maximum around it. The ranges, not the targets, are what monitoring tests. Ranges that are too tight produce constant breaches, and ranges that are too wide mean little. A warning band inside each range gives time to act before a hard limit is crossed.
To fix the long-term target mix and the permitted range for each asset class, and to define the classes precisely. It also says what discretion the manager has within the ranges.
What to write
Use a table with four columns: asset class, minimum, target and maximum. Define each class so that every holding falls into exactly one. Otherwise a balanced fund, a convertible bond or a property company can sit in two classes, or in none. State the denominator: total portfolio value at market prices, with or without cash.
Then say how much discretion sits inside the ranges. Strategic bands are the client's decision, and tactical positions within them are the manager's. Record any legacy or restricted holding that sits outside the scheme, and say whether it counts toward its class.
Ranges, warnings and look-through
Each class becomes an allocation range rule with a hard minimum and maximum. Add warning bounds a few points inside, so the committee sees drift before it becomes a breach: see hard limits and warning limits.
Decide whether funds are looked through. A multi-asset fund booked as one line changes the equity weight only if its holdings are expanded. Acclimetry's look-through exposure rule expands funds through their recorded compositions, and never guesses a missing one. In Acclimetry, strategic bands are governed rules while tactical positions are the manager's, and the Analysis view reads exposure by dimension.
Common gaps
- Targets with no ranges, so every move off target looks like a breach.
- Classes defined by fund name rather than by what the fund holds.
- A private-markets cap on current value only, with no limit on commitments still to be drawn: see unfunded commitments no more than 30%.
- Private-market ranges with no plan for the denominator effect: a fall in listed markets can lift them over their maximum without a purchase.
Sample clauses
- The strategic allocation and permitted ranges are set out in Schedule 4. Weights are measured at market value as a share of total portfolio value.
- Equities: target 50%, minimum 40%, maximum 60%.
- Private markets will not exceed 20% of the portfolio at current value.
- Multi-asset funds are allocated to asset classes by look-through, using each fund's latest published holdings.
- Within the ranges the manager may vary weights at its discretion. Positions outside them require the committee's approval.
How each clause becomes testable
| The clause | Rule template | Note |
|---|---|---|
| Equities: target 50%, minimum 40%, maximum 60%. | allocation_range | Dimension class, group Equities, hard minimum 40 and hard maximum 60. Warning bounds at 42 and 58 show drift early. |
| Private markets will not exceed 20% of the portfolio at current value. | allocation_range | A band on the private-markets class with a hard maximum of 20. Undrawn commitments need a separate commitment limit. |
| Multi-asset funds are allocated to asset classes by look-through, using each fund's latest published holdings. | look_through_exposure | Fund positions are expanded through their recorded compositions. A missing or stale composition leaves the group weight unsettled. |