Philippe Jabre: Keeping Families Aligned Through Investment Policy Statements

Jabre Capital Partners Founder, CIO and CEO Philippe Jabre heads a leading independent wealth management firm and multi-family office. This article will look at the critical role of a well-honed investment policy statement (IPS), providing decisionmakers with clarity in moments of upheaval and uncertainty.

Board-approved documents outlining investment objectives and financial goals empower family offices, nonprofits and other organisations through volatile markets. Market conditions that characterised 2022 highlighted the need for an expertly crafted IPS, the year marking an exceptionally challenging period in the financial world. The confluence of a bear market in equities, surging inflation, and economic dislocations accompanying the Russian invasion of Ukraine caused declines in the value of endowments that public charities and private foundations depend on to fund grant-making and operations.

An IPS is a foundational document that provides an overview of an organisation’s investment approach along with its mission statement in a single, accessible place. It sets out procedures, policies and guidelines for managing investments, helping the organisation and its board members to avoid falling foul of making rash decisions in the heat of the moment. As the Bank of America’s MD and Philanthropic Executive, William Jarvis points out, the IPS serves as a refuge for rationality in moments of turbulence.

In addition to helping plot a course through volatile markets, the IPS is invaluable to new board trustees and investment committee members, providing them with a crash course in how investments support the organisation’s objectives, as well as documenting how these investments are to be managed and spent.

In terms of crafting an IPS, the starting point is defining the organisation’s mission. Whether established and run by a corporation, a family or individual, a private foundation must identify the charitable goals it seeks to accomplish, meeting the legal requirement that it spends at least 5% of its asset values annually, generally by making grants to other nonprofits. Public charities, on the other hand, have more flexibility, with spending varying from year. A public charity also has the power to opt against spending from its endowment some years.

When setting targets for investment returns, the IPS must add an estimate of long-term inflation. While organisations typically used a 2% estimated inflation rate until relatively recently, prices have risen faster in recent years.

The IPS stipulates which types of investment are approved, and which are prohibited. While some organisations prefer to stick with traditional assets such as stocks and bonds, others may be willing to consider private equity, hedge funds, real estate, and other investments to broaden diversification.

The IPS provides a clear summary of investment objectives, avoiding complicated financial jargon and informing the reader about the investment portfolio’s purpose in a way that is easy to understand. It also identifies the responsible parties, delineating the roles and responsibilities of committees and individuals responsible for managing the organisation’s investment. Roles set out in the IPS often includes the investment manager, board of directors and investment committee. It outlines a clear governance structure, indicating how decisions are made and which governing body is responsible for each action or item for approval.

One important purpose of the IPS is articulating how the organisation will measure the success of its investment strategy. It should provide a realistic investment return target based upon updated asset-class return forecasts considering the current economic and market landscape.

Another critical aspect of the IPO is risk monitoring and management. The organisation must develop a comprehensive risk management strategy, outlining how it will handle investment risks, including rebalancing, reporting, risk assessment, and contingency planning. It is crucial for the IPS to be reviewed periodically, keeping in mind that it is not a static document, but one which must continually evolve to ensure that the investment strategy remains aligns with the organisation’s objective and goals over time.