Family Governance and the IPS
Creating the rules of engagement: Investment Policy Statements, family councils, and dispute resolution.
The Investment Policy Statement (IPS)
The IPS is the constitution of the family office's capital. It dictates target returns, acceptable risk parameters, liquidity constraints, and ESG/impact mandates. Without a rigorous IPS, the Chief Investment Officer is forced to guess the family's risk tolerance, often leading to conflict during market drawdowns.
The Family Council vs. Investment Committee
A fatal flaw in many SFOs is combining the Family Council (handling emotional/relational wealth, philanthropy, next-gen education) with the Investment Committee (handling hard capital allocation). These must be separate bodies. The Investment Committee should include outside, independent professionals.
| Body | Membership | Core Focus |
|---|---|---|
| Family Council | Family members, facilitators | Unity, education, philanthropy |
| Investment Committee | CIO, Principals, Independent Experts | Asset allocation, manager selection |
| Board of Directors | Principals, Independent Directors | Hiring/firing CEO/CIO, budget approval |
Common Mistakes
Drafting an IPS that is too vague (e.g., "maximize returns while minimizing risk"). An IPS must have hard numbers: e.g., "Target net annualized return of CPI + 4%, with a maximum peak-to-trough drawdown limit of 15%."
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