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Efficient Investment Policy
Enable an investment portfolio to maximize investment income while protecting assets.
Many existing investment policy decrees are written using flawed methodologies. This is usually done during a cataclysmic market event when authors feel compelled to insert Band-Aid propaganda at the height of financial hysteria. Alternatively, authors merge pilfered pieces of other ineffective policies during the revision process. Once these pieces are included in a policy, management is often reluctant to remove them for fear of being left unprotected. After all, in many cases the language does sound plausible to non-investment experts! Myths, mistakes and misrepresentations multiply as authors change jobs or copy each other's work.
To write an efficient investment policy - one that allows an investment portfolio to protect assets while maximizing investment income - an author must understand how investment markets work, be able to separate real hazards from imaginary ones, and quantify the impact that both may have on investment performance. To be pragmatic, one must also have confidence in one's convictions - enough to explain his or her reasons to the fiduciaries of the corporate investments.
Among other things, an investment policy should:
Be a statement of tolerable risk
Insulate an investment portfolio from default and exposure to risk
Guard against illiquidity
Institute internal controls
All of these protections should be accomplished without compromising investment performance.
Twenty-five years ago, the investment world was a pretty dependable place. Bonds were bonds, stocks were stocks, spreadsheets were on paper, and quantitative analysis was largely confined to academia.
Things have certainly changed, including increased scrutiny of corporate investment protections. Budgets continue to shrink while the demand for performance of corporate assets continues to increase. With offers varying by only a few basis points, the extra yield provided from a well-written investment policy may be worth millions of dollars in investment income to a corporation. Conversely, a poorly conceived investment policy will not only inhibit investment efforts, it may also put corporate funds at risk.
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