The portfolio management process and investment policy statement

What’s investment policy statement?

An investment policy statement (IPS) is a written document that clearly sets out a client’s return objectives and risk tolerance over that client’s time horizon, along with applicable constraints such as liquidity needs, tax considerations, regulatory requirements and unique circumstances.

The IPS provides the foundation of the portfolio management process.

Three steps of portfolio management

The planning step

The execution step

The feedback

What are included in the planning step

Identifying and specifying the investor’s objective and constraints

Creating the IPS(Passive/active/semi-active)

Forming the capital market expectation

Creating SAA

What’s execution step

Portfolio optimization

Feedback step

Monitoring and rebalancing

Performance evaluation, which includes performance measurement, performance attribution, performance appraisal

Often, we examine a portfolio’s performance, in terms of total returns, as coming from three sources

Decisions regarding the SAA, market timing and security selection

Invesment objections

Risk and Return

Invesment constraints

Liquidity

Time horizon

Tax concerns

Legal and regulatory factor

Unique circumstances (Ethical problems and health concern)