Although an Investment Policy Statement addresses a broad range of issues, it is the standards that the client establishes for measuring an account's return and risk, as well as the performance of individual managers, that can often have the greatest impact on the evaluation process.

Establishing return objectives may at first blush appear to be straightforward. It is not. There are many different ways to evaluate an account's return. This issue can be further complicated if the client has separate objectives for income and principal growth, or if any of the parameters inhibit the effective management of the account. In any event, no measurement presents a complete picture on its own. IPEX addresses this issue by including a number of different types of measurements in the IPS. Specifically, we include a primary benchmark, a reference benchmark, a manager universe, plus both nominal and real return targets.

The key to this approach is to determine the particular measurements that are best suited to each individual client. In making this determination there are three important considerations. First, ensuring that the measurements correspond with the manager's investment style. Second, ensuring that the measurements correspond with the client's investment goals. Third, ensuring that the measurements are properly prioritized. 

Compared to evaluating return, trying to evaluate an account's risk is even more complex. It is all too easy to get bogged down in a variety of complicated, statistical risk variables. Although IPEX usually will include many of these measurements, as they can be helpful in evaluating a money manager's overall performance, often they will have little to do with the client's actual risk profile. From the client's standpoint, we will usually measure risk in terms of the failure to meet the targeted return or the likelihood of incurring a substantial loss over a defined period of time. 

One of the biggest decisions that a client must make is deciding whether to terminate a manager. While these decisions are never easy, a good IPS can encourage a rational discussion by establishing appropriate standards for evaluating the money manager at the inception of the client / manager relationship. To ensure that the manager review process will be fair to both the client and the manager, IPEX works closely with the manager in preparing the IPS and in selecting the various standards and benchmarks.