Having determined its vision of the future and defined its mission, the organisation must underpin them with a set of more specific investment principles (also known as investment beliefs). The principles should be a set of clear, impactful statements that will help select your investment strategy, inform your asset allocation and align all investment decisions. These principles need to be well communicated, and accepted across the organisation.

The specificity and quantity of investment principles will vary between asset owners. Organisations may have as few as three-to-four high-level principles or a larger number of more specific principles. It is important to keep in mind that investment principles will subsequently inform the writing of your investment policy.

Examples

  • “There are unique opportunities for long-term investors.”

  • “Markets are efficient and it is difficult to beat the market: therefore we focus on low-cost operation.”

  • “Diversification lowers risk and we will use diversification effectively to maximise return at the lowest possible risk.”

  • “We seek the most attractive investment opportunities that have positive ESG effects that do not require a financial trade-off.”

  • “By staying liquid we are able to take advantage of periods of market dislocation where markets are least efficient.”

  • “Complying with the Sustainable Development Goals will enhance returns in the medium to long term.” 

Topics to consider

  • What is your guiding investment approach? Do you see the market as efficient or inefficient? What is your approach to market inefficiencies, e.g. do you seek to take advantage of inefficiencies or will you ignore them?

  • What is your view on the value of diversification? What is your view on the impact of excluding certain investments?

  • Is timing important to investing successfully?

  • What types of risks do you incorporate (and to what extent) in your investment strategy (e.g. liquidity, volatility, regulatory, climate, technology)?

  • Does active investing give returns exceeding the costs?

  • Does active ownership give returns exceeding the costs?

  • What is your appetite for risk and volatility in relation to your liabilities?

  • Do you view ESG factors as material to investment returns (through risk or opportunity)?

  • Do you incorporate ESG factors into your investment decision making? Does your organisation contain the competencies to do so?

  • Are you willing/mandated to screen investments out or in regardless of financial attractiveness (e.g. tobacco, nuclear power)?

  • Are there specific investment preferences driven by the nature of your beneficiaries/customers (e.g. specific regions, particular screening requirements)?

  • Do you use best-in-class methodology?

  • What is your view on the benefit of a long-term investment outlook?

  • What standards do you want the portfolio to adhere to (e.g. UN Global Compact)?

  • Are your principles applicable to the whole asset base? Will you make additional sets of principles for specific groups of assets?

  • Will you invest thematically (e.g. low-carbon investing)?

  • Do you consider impact on people/planet? How is this translated into investment decisions?

  • What would lead you to change the principles?

  • Other…

Actions and roles

  1. The investment committee, CIO, and project lead develops or reviews (through workshops and/or discussions) a set of principles based on the vision and mission the board has approved.

  2. Project sponsor presents draft principles at next board meeting for discussion and approval.

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