Writing the first investment policy for a family office
Built on Chapter 6 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
Write the first investment policy before the office receives a proposal it feels pressured to accept. A billionaire family needs agreed instructions about the use of capital while there is still room to discuss them calmly. Otherwise the first attractive deal can become the policy by default.
Chapter 6 asks families to define their investment scope, income needs, and decision authority during setup. I would turn those answers into a policy the committee can apply and the family can understand. The instructions should begin with the actual balance sheet and obligations.
Establish what capital is available
Reconcile assets and liabilities across the entities involved. Identify cash that is restricted or already expected to meet an obligation. Include unfunded commitments and guarantees in the discussion of exposure.
Separate value from liquidity. A business or property may represent substantial wealth while producing limited cash for new commitments. The office should know which entity can provide the funds and what approvals are required to use them.
Build a schedule of expected payments and potential calls on capital. The investment plan should be tested against that schedule before the family considers how much it wants to commit for longer periods.
State the objectives in usable order
Use the family compass to explain what the portfolio must support. If objectives compete, describe how the authorized decision makers will weigh them. A general desire for growth does not explain what loss or illiquidity the family is willing to accept.
Ask the family to explain its priorities back in ordinary language. Differences in interpretation should be resolved before technical portfolio instructions make them harder to see.
Define the permitted scope
Specify the types of investments the office is prepared to examine and the expertise required. The family may understand its original industry well while needing outside help for other assets.
Have the responsible investment professionals propose appropriate limits for the actual portfolio. Review concentration and the exposure created through related investments. Several investments can depend on the same underlying business conditions even when they appear in different reporting categories.
Identify activities that require separate approval, including borrowing or guarantees where relevant. A policy about cash investments alone can miss obligations created through contracts.
Set the diligence and approval process
State what evidence is required before a recommendation reaches the committee. Include review of the counterparty, economic terms, and the principal risks relevant to the proposed investment. The required work should fit the type of transaction.
Define the approval authority and the treatment of conflicts. A family referral should enter the same recorded process. Any exception needs an authorized decision with a reason that can be understood later.
Keep investment consent separate from the release of funds. The payment employee needs evidence that required approvals and conditions are complete before money moves.
Decide how the policy will be monitored
Set reporting expectations and a review route. The family should see liquidity and commitments alongside performance. Explain how results will be evaluated against the portfolio's objectives and constraints.
Identify who can propose amendments and which body can approve them. A change in spending needs or a major asset event may require a policy review. Record the resulting decisions and communicate new instructions to the team.
If exceptions repeatedly concern the same restriction, ask the authorized body whether that restriction should change. Record its decision in the current policy.
What to take from this
- Begin with verified capital and obligations by entity.
- Translate family objectives into workable portfolio instructions.
- Define diligence and final approval before a proposal arrives.
- Monitor commitments and liquidity alongside performance.
Take the first proposed investment through the complete written process. If the team cannot identify the authority, cash source, or required evidence, resolve that gap before committing the family's capital.
This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.
Questions and answers
Should a new office copy another family investment policy? Use another document only as a reference for questions. The actual policy must fit this family and its assets, obligations, and authority.
Who writes the detailed investment limits? Responsible investment professionals should develop them from the family objectives and verified information, with the appropriate approvals and specialist input.
Can an exception change the policy? Record whether it applies only to a particular decision. A general change needs the authorized amendment process.