Setting The Course: The Committee's Role In Shaping Investment Strategies

An investment committee is a group of people who oversee an organisation's investment policies, advisor selection, strategy, and fund performance. The committee ensures that those responsible for investing the institution's assets are doing so in compliance with the agreed investment policy. The committee is not directly responsible for investing but instead has a governance role.

The committee is bound by an ethical and legal obligation to act in the best interest of the organisation or group. Members do not necessarily need an investment background but should be committed to learning what they need to know to make informed decisions.

The first step in creating an effective and successful investment committee is drafting an Investment Committee Charter. This outlines the roles and responsibilities of members, support staff, and external advisors. It should also outline the ideal size of the committee, which is usually between five and eight members.

Investment committee members

Investment committees are responsible for managing an organization's investments and setting its broad investment policies. They play a crucial role in the investment decision-making process and are held to high fiduciary standards.

The selection process for investment committee members varies across organizations. In private organizations, members may be appointed or serve as volunteers, and can include employees from the executive team, HR, legal, and finance departments. In nonprofit organizations, committees often comprise staff and volunteers with some financial or investment experience. Regardless of the organization, members should be financially literate and committed to learning about investment decision-making.

The primary role of an investment committee is one of governance, ensuring compliance with the agreed-upon investment policy, rather than investing. The committee should have a clear investment strategy, or Investment Policy Statement (IPS), that outlines the organization's risk tolerance, expected returns, and basis for establishing annual withdrawals. The IPS should also include key portfolio parameters and constraints, such as liquidity constraints, currency strategy, and geographic diversification.

Committee members bear a significant responsibility and are ethically and legally bound to act in the best interest of the organization or group. They must accept the duties and responsibilities of their positions and remain aware that ignorance or poor communication will not absolve them of any fiduciary liability.

To ensure effective decision-making, investment committees should meet regularly, typically two to four times per year, with detailed documentation of meeting activities and decisions. The committee should also include a fiduciary audit file that captures all investment-related documentation.

• Develop an Investment Policy Statement (IPS): The IPS should include the investment philosophy, strategy, due diligence procedures, and benchmarks for measuring plan performance.
• Assess Investment Performance: Compare the plan's performance against benchmarks in the IPS and identify any changes in the investment management team, investment style, fees, expenses, and assets under management.
• Hold Regular Meetings: Provide all relevant data and an agenda to members before the meeting, and ensure detailed documentation of meeting activities and decisions.
• Accept Responsibility: Each member should acknowledge and accept their duties, understanding that they are personally liable for any misconduct or negligence.
• Stay Informed: Members should stay abreast of changes in regulations and legal rulings that may impact the plan's management, including ERISA regulations if applicable.
• Maintain an In-house Fiduciary Audit File: Keep meticulous records of discussions, considerations, and decisions to ensure accountability and address any questions or concerns about the fund's performance.

Investment committee duties

Investment committees are responsible for managing an organization's investments. They play a prominent role in the investment decision-making process and are tasked with ensuring that an organization's investments are managed in alignment with its goals and objectives.

Establishing Investment Policy:

The committee is responsible for developing and approving the Investment Policy, a document outlining the organization's investment goals, strategies, and constraints. This policy provides a framework for investment decisions and ensures consistency in the selection of investment options.

Overseeing Implementation of Investment Strategies:

Once the Investment Policy is established, the committee oversees the implementation of investment strategies designed to meet the organization's goals. They ensure that the strategies are in compliance with the agreed-upon investment policy and the organization's risk tolerance.

Monitoring and Correcting Investment Performance:

Investment committees monitor the performance of investments, identifying under-performing areas and working to correct or improve them. They compare the plan's performance against benchmarks and assess changes in the investment management team, style, fees, and assets under management.

Making Investment Recommendations:

The committee provides recommendations to Investment Managers on how to optimize the Investment Policy and maximize returns. They work closely with Investment Administrative Assistants, who support the committee by preparing materials, scheduling meetings, and facilitating communication with Investment Managers.

Selecting Investment Managers:

A key duty of the investment committee is selecting qualified Investment Managers who will allocate funds within the investment portfolio to maximize returns. The committee should consider the expertise and experience of these managers to ensure effective implementation of the investment strategies.

Conducting Financial Reviews:

Investment committees review the organization's financial position and make informed recommendations about where to invest funds. They assess the financial operations, typically on an annual basis, and prepare reports for the organization's board of directors.

Providing Investment Expertise:

In cases where Investment Managers are hired as consultants, the committee may also provide Investment Management expertise throughout the process. They can offer insights and guidance to ensure that investment decisions are well-informed and aligned with the organization's objectives.

Maintaining Confidentiality:

To make effective recommendations, investment committees require access to sensitive information such as Investment Manager performance data and investment holdings. They must maintain the confidentiality of this information to avoid potential conflicts of interest.

Educating Committee Members:

Committee members are expected to have a strong understanding of the investment process. They should stay informed about regulations, legal rulings, and industry trends that may impact the plan's management. While financial or investment experience is beneficial, it is not always required, as members can commit to learning what they need to know to make informed decisions.

Creating an Investment Committee Charter:

The committee should create a charter that outlines the roles and responsibilities of its members, support staff, and external advisors. This document should emphasize the importance of meeting preparation and attendance, as well as outline rules for member tenure to ensure a constant influx of fresh expertise.

Adopting a Clear Investment Strategy:

The investment committee should adopt an Investment Policy Statement (IPS) that includes assumptions about the organization's risk tolerance, expected returns, and the basis for establishing annual withdrawals. The IPS should also specify key portfolio parameters, such as liquidity constraints, currency strategy, geographic diversification, and environmental, social, and governance considerations.

Measuring Performance:

The committee should have clear benchmarks and means to measure short-term and long-term performance. These benchmarks help assess whether the institution's investment goals have been achieved and enable the committee to make data-driven decisions.

Evaluating and Hiring Managers:

The investment committee should have clear criteria and processes for hiring and terminating managers responsible for implementing the investment strategy. This ensures that the organization has the best talent to execute its investment plans effectively.

Exercising Sound Judgment:

The committee should exercise sound judgment through a disciplined process of routine meetings, typically held quarterly. These meetings are critical for making informed decisions and ensuring the committee's effectiveness in governing the organization's investments.

Maintaining Documentation:

The investment committee is responsible for maintaining detailed documentation of meeting activities, decisions made, and all investment-related information. This documentation serves as a reference for past decisions, tracks the progress of the investment portfolio, and demonstrates a prudent decision-making process.

In summary, the investment committee duties encompass a wide range of activities, from establishing investment policies to selecting managers and monitoring performance. The committee plays a crucial role in ensuring the organization's investments are well-managed, aligned with its objectives, and focused on protecting and growing the organization's assets.

Investment policy statement

An investment committee is a group of people responsible for managing an organisation's investments. The committee is responsible for overseeing investment policies, advisor selection, strategy, and fund performance to ensure the best possible outcome for the organisation's members or beneficiaries.

The investment committee is established by the plan sponsor, who drafts a charter detailing how committee members are selected. The charter outlines the purpose of the committee, which is to establish a formal process for managing the organisation's investment strategy.

The investment committee plays a crucial role in the investment decision-making process and helps protect the organisation from risk. They are responsible for creating an investment policy statement (IPS) that includes the organisation's investment philosophy and strategy. The IPS outlines the broad investment policies and is a formal document drafted between a portfolio manager or financial advisor and a client.

The IPS provides a framework for managing client assets and outlines the financial goals, investment objectives, and roles and responsibilities of all parties involved. It includes specific objectives, benchmarks, asset allocation guidelines, and any security or sector-related restrictions. The IPS also describes the client's risk tolerance, expected returns, and the basis for establishing annual withdrawals.

The IPS is a living document that evolves over time as market environments, expectations, and client needs change. It helps preserve the relationship between institutions and provides a guide for new individuals joining the organisation's board of directors.

The investment committee should meet regularly to review the IPS and ensure it aligns with the organisation's goals and the market environment. The committee is responsible for monitoring and managing investment performance and should have a clear process for decision-making.

Investment committee charter

This charter outlines the purpose, composition, authority, duties, and responsibilities of the Investment Committee (the "Committee") of the Board of Directors (the "Board") of [Company Name]. The Committee is responsible for overseeing the company's investment transactions, policies, and guidelines, and ensuring they align with the company's short- and long-term goals.

Purpose

The primary role of the Committee is to approve the company's investment objectives and corporate policies related to investing. The Committee is also responsible for overseeing investment performance, managing investment risk, and ensuring compliance with regulatory requirements.

Composition

The Committee shall be comprised of a minimum of three directors, appointed by the Board. The members shall be determined at the first meeting of the Board following the annual general meeting of shareholders. The Board may remove any committee member at any time, without notice. The Committee may form subcommittees and delegate authority as deemed appropriate.

Meetings

The Committee shall meet at least twice a year, with the option to meet quarterly as necessary. The Committee will maintain records of its meetings and provide copies of the minutes to the Board for the official record. A quorum shall consist of a majority of the committee members.

Authority and Responsibilities

The Committee has the authority to review and establish the company's investment policies, guidelines, and benchmarks. It is responsible for selecting, monitoring, and terminating investment managers and advisers, and for authorizing and ratifying investments. The Committee may also retain independent counsel or other advisors as needed to conduct investigations or provide expertise.

Compensation

Committee members will serve without additional compensation. The company will reimburse all committee members for any committee-related expenses incurred.

Duties

The Committee's duties include, but are not limited to:

• Establishing and periodically reviewing the company's investment policies and guidelines
• Overseeing and reviewing the performance of the company's investments and the impact of the company's policies and guidelines on such performance
• Reviewing the structure, approach, and effectiveness of the company's investment function, including the performance of Company personnel and third-party advisers
• Understanding the company's investment goals and ensuring they align with the company's mission
• Monitoring the performance of investment funds and taking appropriate action as needed
• Reviewing committee members' backgrounds to ensure no conflicts of interest exist
• Adopting a written statement of investment policies, including benchmark portfolios for evaluating returns over time
• Determining the necessary contributions for the company's investment portfolio
• Complying with all relevant laws, regulations, and company policies, including providing notices, reports, and disclosures as required
• Reviewing fees incurred by the portfolio and ensuring they are reasonable
• Reviewing the portfolio's financial statements and other financial reports
• Maintaining records for administering the portfolio and monitoring the actions of the Committee.

Investment strategy

Investment committees are responsible for managing an organization's investments. They are tasked with overseeing investment policies, advisor selection, strategy, and fund performance to ensure optimal results for the organization's members or beneficiaries. The committee's primary role is governance, ensuring that those responsible for investing the institution's assets are doing so in compliance with the agreed-upon investment policy.

Investment Committee Charter:

The Investment Committee Charter outlines the roles and responsibilities of committee members, support staff, and external advisors. It should specify the purpose of the assets, how success will be measured, and the rules for members. The charter should also outline the ideal size of the committee, typically between five and eight members, to ensure efficient decision-making and diversity of opinion.

Investment Policy Statement (IPS):

The IPS is a critical document that outlines a successful long-term investment process aligned with the organization's unique short- and long-term goals. It provides details on how to measure success and sets thresholds for investment decisions, helping to keep emotions and poor decisions out of the investment process. The IPS should include the organization's risk tolerance, expected returns, portfolio parameters, and constraints.

Complementary Expertise:

Committee members should bring relevant experience complementary to the internal portfolio management team. This includes overall multi-asset class portfolio management experience or specific in-depth asset class investment management experience. The diverse expertise ensures a balanced perspective and effective decision-making.

Clear Objectives and Benchmarks:

The investment committee should have a clear understanding of the purpose and objectives of the assets. This includes defining success metrics and establishing benchmarks to measure short-term and long-term performance.

Regular Meetings and Evaluation:

Investment committees typically meet four times a year to review performance, assess macroeconomic conditions, and monitor compliance with the investment policy. Meetings should be well-prepared and structured, encouraging input and discussion from all committee members. Regular evaluation of investment managers is essential, with clear criteria for hiring and terminating managers.

Social Impact and Regulatory Compliance:

Investment committees should also consider the social impact of their investment decisions and align investments with organizational initiatives. Additionally, they must adhere to regulatory requirements, such as those set by the FCA or the charity commission, depending on the sector.

By following these guidelines, an investment committee can effectively govern and implement an investment strategy that achieves the organization's financial goals while also managing risk and ensuring compliance.

Frequently asked questions