An investment policy statement is not governance
An IPS says what may be held. It does not say who may decide to hold it, on whose recommendation, or what happens when two owners disagree. Both documents are needed. Only one of them is governance.
An investment policy statement constrains the portfolio. Governance allocates the authority. An IPS sets ranges, classes, limits and what is out of bounds. It names no one, allocates no threshold, and settles no disagreement between owners.
A family with a good IPS and no decision rights can still be unable to say who may commit capital next Tuesday, or who to ask when the answer is contested.
The document is not wrong. It is answering a different question from the one most families think they have covered by having it.
What an investment policy statement is actually for.
An IPS is a mandate document. It describes the objective, the horizon, the tolerance for loss, the asset classes permitted and their ranges, the rebalancing discipline, and the exclusions.
Its purpose is to hold a portfolio to a decision the owners already took, through periods when they would be tempted to take a different one. That is a real and valuable job, and a portfolio run without one is a portfolio run on mood.
We do not advise on investments and this piece is not investment advice. What follows is about the authority around the document rather than about anything in it.
Four questions an IPS does not answer.
Each is a question families discover they have at the moment it is contested, which is the worst moment to discover it.
- Who may commit, and up to what
- An IPS says private credit may be between five and fifteen percent of the portfolio. It does not say whether the chief investment officer may place a commitment inside that range alone, or at what size a second signature is required, or whose. The range is a constraint on the answer, not an allocation of the right to give one.
- Who decides when the document is silent
- Every mandate meets an instrument it did not anticipate. The question then is not what the policy permits but who is authorised to interpret it, and whether that interpretation binds. Most statements are silent on their own interpretation, which leaves the loudest owner holding the pen.
- How a disagreement between owners is settled
- Two owners who read the same paragraph differently need a route, not a paragraph. Who convenes, who is heard, what standard applies, who rules, and whether the ruling is recorded. None of that belongs in an investment policy statement, and it has to live somewhere.
- What is recorded when the decision is taken
- An IPS governs the position. Governance governs the record: what was decided, by whom, on what evidence, and why the alternative was rejected. A family that can produce a portfolio and cannot produce the reasoning behind it has documentation without evidence.
The investment half is the governed half.
Citi Private Bank asked 338 family offices in 2024, and reported that almost half, 48 percent, had no investment policy statement at all.
The same survey found the adoption of formal governance unevenly distributed across the family enterprise. More than two thirds of families had a formal system for the investment function. Less than half had one for the other affairs of the family office and for the family itself.
Read together those two findings describe a familiar shape. The investment function is the part of a family enterprise most likely to be formally governed, and even there half the families have not written the mandate down. Everything outside it is governed more thinly still.
Prevalence also rises with generation. Citi reports investment policy statements at 45 percent among first-generation families, 53 percent in the second, and 68 percent in the third and beyond. Families adopt these documents after the disagreement that made them necessary.
The authority belongs in a matrix, not in the mandate.
The answers to the four questions above are a decision rights matrix: subject by subject, the threshold at which authority changes hands, who holds it at each level, who must be consulted, and who is merely informed.
It is a short document. A family holding an operating company, a portfolio and a foundation can usually write the first version on two pages, and the writing is where the disagreements surface, which is the point.
Put next to an investment policy statement, the matrix answers who and the statement answers what. Neither substitutes for the other, and a family that has one and believes it has both is exposed precisely where it feels covered.
The decision rights matrix sets out the shape, and the Governance Maturity Curve is what places an enterprise once both documents exist.
One question, answerable this week.
Take the largest commitment made in the last twelve months. Produce the document that authorised the person who made it to make it, at that size, without further approval.
If what comes back is the investment policy statement, it will show that the position was permitted. It will not show that the person was authorised, and those are different claims.
If nothing comes back, the commitment was lawful and ungoverned, which is the ordinary state of affairs in a family enterprise and stays ordinary right up until somebody asks.
Questions this raises.
Are you saying an investment policy statement is not worth having?
The opposite. It does a job nothing else does, which is holding a portfolio to a decision the owners took calmly during a period when they would decide differently. The argument here is only that it answers what may be held and not who may decide, and that a family reading it as governance has covered one of those two questions.
Where should decision rights live if not in the IPS?
In a document of their own, usually called a decision rights matrix or an authority matrix, held by whichever body governs the enterprise as a whole. Keeping it separate matters: the mandate is revised when the strategy changes, and authority should not be reopened every time the allocation is.
Our adviser drafted our IPS. Is that a conflict?
It is a question worth asking rather than a verdict. A mandate drafted by the party that will be measured against it is a common arrangement and a reasonable one, provided the owners can say who approved the draft, on what basis, and who may change it. If the answer to any of those is the adviser, the document is describing itself.
How would we know we have this gap?
Take the largest commitment of the last year and ask for the document that authorised the person who made it, at that size, without further approval. An investment policy statement will show the position was permitted. If nothing shows the person was authorised, the gap is there.