Published 2026-04-10 · Last updated 2026-04-24 · By Hemant Agarwal, Founder of GCI
An Investment Policy Statement (IPS) is the written document that defines how a family office invests. It captures investment objectives, risk tolerance, asset allocation, manager selection criteria, rebalancing rules, and governance. Families that operate without a formal IPS typically experience faster drift, weaker accountability, and harder succession. This is the 2026 framework we use on Conviction Reports to build institutional-grade IPS for HNWI families.
The seven sections of a complete IPS
1. Investment objectives and time horizon
Specific, measurable, and tied to the family's actual purpose. Common objective formulations:
- Preserve real purchasing power of principal net of inflation, tax, and distributions.
- Generate USD X million annual distributions to support family lifestyle.
- Compound at Y percent real return over 20-year rolling periods.
- Build endowment to fund future family commitments (education, philanthropy, future operating capital).
Tie the objective to time horizon: 10-year, 20-year, perpetual.
2. Risk tolerance
Quantify risk, don't describe it. Examples:
- Maximum annual drawdown tolerance: e.g., minus 15 percent peak-to-trough.
- Minimum liquidity: e.g., 20 percent of AUM must be convertible to cash within 30 days.
- Maximum sector concentration: e.g., no single sector above 30 percent of AUM.
- Maximum single manager concentration: e.g., no single manager above 10 percent of AUM.
3. Strategic asset allocation
Target weights and permitted ranges for each asset class:
- Public equities: X percent target, Y to Z percent range
- Public fixed income: X percent target, Y to Z percent range
- Real estate: X percent target, Y to Z percent range
- Private equity / venture capital: X percent target, Y to Z percent range
- Hedge funds: X percent target, Y to Z percent range
- Cash and cash equivalents: minimum X percent, maximum Y percent
For GCC HNWI families with operating businesses, we typically advise a 20 to 35 percent real estate allocation given home market familiarity, but cap operating business exposure separately.
4. Manager selection criteria
The IPS should define the due diligence process for selecting external managers:
- Minimum track record length (typically 5 to 10 years)
- Minimum AUM for selected manager
- Fee structure maximum (2 and 20 for PE, 1 and 15 or lower for hedge funds, 75 bps or lower for long-only equity)
- Operational due diligence requirements (valuation, custody, audit firm quality)
- Alignment of interest requirements (GP co-investment minimums)
5. Rebalancing policy
When and how the portfolio is rebalanced back to target weights:
- Calendar rebalancing (e.g., quarterly) vs threshold rebalancing (when an asset class deviates by more than X percent from target)
- Tax-aware rebalancing (use cash flows and distributions before selling)
- Turnover limits to minimise transaction cost
6. Governance and decision rights
Who decides what. Common framework:
- Board / Council: strategic asset allocation changes, manager hires and terminations above threshold, major illiquid investments
- Investment Committee: manager reviews, tactical allocation shifts within policy ranges, rebalancing decisions
- CIO / Investment Team: execution, daily liquidity management, within-policy tactical decisions
- External advisors: specific advisory role, no decision authority
7. Review and update cadence
- Annual review of entire IPS by Board / Council
- Material market or family event triggers interim review
- Semi-annual performance review against objectives
- Updates require formal approval and documented minutes
Common IPS design mistakes
- Boilerplate language not specific to the family
- Objectives stated as aspirations not measurable targets
- Risk tolerance described in words ("moderate") not numbers
- Asset allocation targets without permitted ranges
- No rebalancing trigger defined
- Governance rights unclear or missing
- No review cadence established
Founder's Notes
A Kuwaiti family office with USD 260M AUM commissioned a Conviction Report on their existing IPS. The document had been written 6 years earlier by a consultancy and had not been updated. We identified 11 material gaps: no quantified risk tolerance, no rebalancing trigger, no manager concentration limit, no liquidity minimum, no governance decision matrix, no review cadence. We also identified that the actual portfolio had drifted 40 percent away from the stated target allocation with no accountability mechanism. The revised IPS we helped design is now 22 pages, reviewed annually, and drives investment committee discipline. Within 12 months, portfolio volatility dropped 30 percent with minimal impact to return. The lesson: a good IPS is institutional discipline in written form, not paperwork.
How we verify this on a live deal
IPS design Conviction Reports map the family's actual operating pattern to a fit-for-purpose IPS framework. Output includes a draft IPS, governance recommendations, and a transition plan for implementing new policies. See related playbooks on GCC Family Office Governance and UAE Family Office Setup 2026.
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