This lesson establishes the strategic governance framework for treasury investments through the Investment Policy Statement.

1.1 The Purpose of an Investment Policy Statement

The Investment Policy Statement (IPS) is the foundational document that governs the management of a treasury investment portfolio. It ensures that all investment activities are aligned with the organisation’s strategic objectives, risk appetite, and regulatory requirements. A well-crafted IPS is a prerequisite for a successful treasury investment program, providing clear direction for investment managers and a benchmark for evaluating performance .

1.2 Key Elements of an IPS

A comprehensive IPS for a treasury portfolio should cover:

• Objectives: The primary objectives are safety, liquidity, and then yield, as defined in standard treasury curricula .

• Authorised Instruments: A clear definition of what the portfolio may invest in (e.g., government bonds, commercial paper, term deposits, money market funds) .

• Credit Quality: Minimum acceptable credit ratings for issuers and instruments .

• Maturity Limits: Maximum and, sometimes, minimum maturity limits to manage interest rate risk and liquidity .

• Diversification: Limits on exposure to any single issuer, sector, or instrument type .

• Benchmarks and Performance: A defined performance benchmark against which the portfolio’s return will be measured .

• Reporting: The requirements for reporting investment activity and performance to the board or senior management.

1.3 Policy Governance and Review

An IPS is not a static document. It must be formally approved by the board or a designated committee, and it should be reviewed periodically to ensure it remains fit for purpose . Any significant change in the organisation’s risk appetite, regulatory environment, or market conditions should trigger a review.