KKRA believes that a well thought-out set of Investment Guidelines plays a critical role in the owner-custodian-manager relationship. When carefully designed, these guidelines help define risk and reward.
THE MOST IMPORTANT ELEMENTS OF A WORKING INVESTMENT GUIDELINE DOCUMENT ARE:
Policy Scope, Objectives & Controls
Defines which funds are to be placed under management and the portfolio's primary investment objectives, such as growth in the case of stocks, and safety, liquidity, and yield in the case of bonds.
Prudence
Defines the "Prudent Investor Rule" as it applies to the investment of the assets.
Delegation of Authority
Defines the roles of the Board of Directors/Trustees, the Finance Committee, or the specific individual responsible for implementing policy and maintaining internal controls.
Role of the Custodian
Defines the specific administrative and custodian functions of the broker/bank custodian as well as prohibited actions such as the use of margin.
Collateralization
For certain deposit type securities, easily converted to cash, it is critical to have pledged securities to assure repayment.
Portfolio Diversification
Sets ownership parameters for each type of investment class including minimum cash requirements.
Eligible Investments
A specific listing of authorized and prohibited securities which has the effect of defining issue liquidity and quality
Maturity Constraints
In bond portfolios, maximum issue maturities and average portfolio maturity targets are often established.
Policy Reporting & Review
Defines the content and frequency of manager and custodian reporting, as well as the procedures for internal reviews.
Internal Control
Corporations often establish a written system of internal control procedures defining individual roles, responsibilities and other activities such as an annual external audit