Meaning and transaction use
The US OCC defines an IPS as a written document establishing portfolio objectives and strategies and says constraints may include liquidity, tax, regulatory and client-specific circumstances. [S1]
The IMF describes an investment policy statement as setting institutional objectives, beliefs, responsibilities and risk tolerance, with accountability required for implementation. [S2]
Proposed family-office control: approve one version with named authorities, liquidity and concentration limits, allocation ranges, valuation and reporting rules, conflict procedures and a dated review cycle.
Worked example
Illustrative liquidity test only. Assume USD 24 million of liquid assets and expected twelve-month outflows of USD 15 million, including capital calls and family distributions.
Scroll the table horizontally to view all columns.
| Measure | Calculation | Result |
|---|---|---|
| Liquid assets | Assumed | USD 24 million |
| Expected outflows | Assumed | USD 15 million |
| Liquidity coverage | 24 / 15 | 1.60x |
| Liquidity cushion | 24 - 15 | USD 9 million |
| Stressed coverage after USD 6 million reduction | 18 / 15 | 1.20x |
Base coverage is 1.60x and stressed coverage is 1.20x. Classification, timing and stress assumptions require approval and regular refresh.
Proposed transaction review process
Define purpose
Record beneficiaries, objectives, horizon and spending or liability needs.
Set governance
Assign approval, execution, custody, valuation, monitoring and exception roles.
Set portfolio rules
Approve risk, liquidity, permitted assets, allocation ranges and benchmarks.
Monitor and review
Reconcile holdings and performance, test limits and retain approved amendments.
Evidence checklist
Family objectives
Approved goals, horizon, distribution policy and liability schedule.
Portfolio evidence
Custody records, valuations, commitments, exposures and liquidity terms.
Governance record
Authorities, minutes, conflicts, adviser mandates and exceptions.
Monitoring record
Benchmarks, performance, risk, breaches, rebalancing and IPS reviews.
Decision framework
| Situation | Proposed action |
|---|---|
| An investment breaches a limit | Escalate under the exception rule before commitment. |
| Liquidity falls below policy | Update cash-flow scenarios and approve remediation. |
| Family objectives change | Revise the IPS through the documented authority and retain the prior version. |
| A direct investment lacks a market price | Apply the approved valuation and reporting policy. |
Common errors to check
- Using an IPS that omits decision authority.
- Ignoring capital calls and illiquidity in cash planning.
- Changing policy after a loss without documented analysis.
- Treating target returns as guaranteed outcomes.
Document the investment policy
Bring the family objectives, cash-flow needs, holdings and governance map to an IPS review. Translate them into approved limits, roles and monitoring rules.
Discuss the transactionPrimary references and editorial scope
- US OCC: Investment Management Services
IPS definition, objectives, strategy and common constraints. Reference checked 17 September 2026. - IMF: Institutionalizing Countercyclical Investment
IPS objectives, beliefs, responsibilities, risk tolerance and implementation accountability. Reference checked 17 September 2026.
General family-office governance education. Figures are hypothetical. Fiduciary, tax, regulatory, trust and suitability obligations depend on the entities, mandates and jurisdictions.
General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.
