Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ======Investment Committee====== An Investment Committee is a formal group of individuals appointed by an organization to oversee its investment program. Think of them as the board of directors for a pool of money. These committees are typically found at institutions managing substantial capital, such as a [[pension fund]], university [[endowment]], insurance company, [[family office]], or [[mutual fund]]. Their core mission is to establish investment policies, make strategic decisions on how to allocate funds, and monitor the performance of the portfolio. They act as fiduciaries, meaning they have a legal and ethical obligation to act in the best interests of the organization and its beneficiaries. While an individual investor doesn't have a formal committee, the principles of discipline, strategic planning, and rigorous oversight that guide a good committee are invaluable lessons for managing your own portfolio. ===== The Who's Who on the Committee ===== An investment committee is a mix of brains and experience, designed to bring diverse perspectives to the table. The goal is to avoid echo chambers and make well-rounded decisions. The cast of characters often includes: * **Internal Leadership:** Senior executives from the organization, such as the Chief Financial Officer (CFO) or the [[Chief Investment Officer (CIO)]], who bring deep knowledge of the organization's financial goals and constraints. * **Investment Professionals:** The CIO and their team are the day-to-day managers, responsible for executing the strategy. They bring market expertise and present specific investment proposals to the committee for approval. * **External Experts:** To broaden their perspective, committees often include outside members. These can be seasoned economists, retired fund managers, or specialists in areas like [[real estate]] or [[private equity]]. They provide an independent, objective viewpoint. * **Stakeholder Representatives:** In the case of a pension fund, for example, the committee might include a representative for the employees to ensure their interests are front and center. ===== What Do They Actually Do? ===== A committee's work isn't just about picking hot stocks. It's a structured, disciplined process focused on long-term success. Their responsibilities can be broken down into three key areas. ==== Setting the Grand Strategy ==== This is the committee's most important job. They create and maintain a foundational document called the [[Investment Policy Statement (IPS)]]. This is the constitution for the entire investment portfolio. The IPS formally outlines: * **Objectives:** What is the required rate of return? * **Risk Tolerance:** How much volatility can the portfolio withstand without jeopardizing the organization's mission? * **Time Horizon:** Is the goal to fund projects next year or provide income 50 years from now? * **Constraints:** Are there any legal restrictions, liquidity needs, or ethical guidelines (e.g., avoiding investments in certain industries)? ==== Making the Big Calls ==== With the IPS as their guide, the committee makes high-level decisions. This isn't about day-trading; it's about setting the course for the ship. * **Asset Allocation:** They decide the strategic mix of asset classes—how much to put into [[stocks]], [[bonds]], cash, and alternatives. This is widely considered the single most significant determinant of long-term returns. * **Manager Selection:** For large portfolios, the committee is responsible for hiring (and firing) external [[investment manager]]s who specialize in different areas. They conduct rigorous due diligence to find managers who align with their philosophy. * **Major Investments:** For very large, illiquid, or unusual investments, the committee will directly review and approve the transaction. ==== The Watchful Guardians ==== The committee's job doesn't end once the money is invested. They provide ongoing oversight to ensure the portfolio stays on track. This involves regular meetings (typically quarterly) to review [[portfolio performance]] against benchmarks, check for compliance with the IPS, and make tactical adjustments if market conditions change dramatically. ===== The Value Investor's Take ===== For a [[value investing]] practitioner, the concept of an investment committee offers both a model to emulate and a cautionary tale. ==== The "One-Person" Committee ==== The average investor is, in effect, a "one-person investment committee." The discipline of a formal committee is something every serious investor should replicate. * **Write Your Own IPS:** Before you buy a single share, write down your goals, time horizon, and rules. What is your [[circle of competence]]? What conditions will cause you to sell an investment? This prevents emotional, in-the-moment decisions. As [[Benjamin Graham]] taught, having a sound intellectual framework is your best defense against market folly. * **Appoint an "External Expert":** Your expert doesn't have to be a person. It can be the timeless wisdom found in the writings of investors like [[Warren Buffett]] or in classic texts on business and finance. When you feel tempted to chase a hot trend, consult your "expert" to stay grounded in first principles. ==== Avoiding Bureaucracy and Groupthink ==== Herein lies the great advantage of the individual investor. A committee's strength—diverse opinions—can also be its weakness. They can suffer from [[groupthink]], where the desire for consensus overrides critical judgment, leading to safe but mediocre "average" decisions. They can also be slow to act, missing fleeting opportunities that a nimble individual can seize. A great value investor often makes bold, contrarian bets that a committee would struggle to approve. The best results in investing often come from a concentrated portfolio of high-conviction ideas, a stark contrast to the broadly diversified, "don't-rock-the-boat" approach of many institutional committees. Your ability to think independently and act decisively, free from institutional pressures, is your ultimate competitive edge.