An Investment Policy Statement (IPS) provides the framework for managing a portfolio — but the IPS itself doesn’t generate returns.
The next step is translating that framework into a specific, executable investment strategy with clear rules about allocation, rebalancing, asset selection, risk management, and ongoing decision-making.

This article explains how to turn a written IPS into a living portfolio, the same way institutions convert guidelines into daily investment operations.

**1. The IPS Defines the “What.”

The Strategy Defines the “How.”**

Your IPS answers:

• What are your goals?
• What is your risk tolerance?
• What are your constraints?
• What is your time horizon?
• What assets are allowed?

Your strategy answers:

• How will you allocate capital?
• How will you manage risk?
• How will you select investments?
• How will you rebalance?
• How will you respond to market changes?
• How will you evaluate success?

Turning IPS → strategy bridges the gap between intention and execution.

2. Step 1: Translate Objectives Into Numeric Targets

Your IPS defines qualitative goals.
Strategy requires quantitative ones.

Examples:

Return Objective:
→ Target 7% net annualized return over a full cycle.

Risk Constraint:
→ Maintain portfolio volatility under 10%.
→ Maximum drawdown tolerance: 20%.

Liquidity Needs:
→ At least 10% in liquid assets at all times.

These numbers become the foundation for allocation decisions.

3. Step 2: Build the Strategic Asset Allocation (SAA)

Strategic Asset Allocation is the long-term portfolio blueprint.

It converts IPS goals into target weights for each asset class.

Example SAA:

• 40% Public Equities
• 20% Private Equity
• 15% Real Estate
• 10% Private Credit
• 10% Fixed Income
• 5% Diversifiers (Hedge Funds, CTAs, Commodities)

The SAA should:

• match risk and return objectives
• reflect liquidity constraints
• incorporate alternatives appropriately
• diversify economic exposures

Important:

SAA is stable — it changes only when IPS goals change.

4. Step 3: Define the Tactical Asset Allocation (TAA) Range

TAA allows controlled flexibility.

Example:

If the long-term target for private credit is 10%, you may allow a band of:

• 8% minimum
• 12% maximum

TAA gives room to:

• lean into opportunities
• trim overheated areas
• manage liquidity
• respond to macro conditions

But TAA must always operate within IPS boundaries.

5. Step 4: Create a Risk Budget

Risk budgeting allocates risk, not dollars.

This step ensures no single asset class dominates the portfolio.

Example:

• 35% risk from equities
• 25% risk from private markets
• 20% risk from alternatives
• 20% risk from fixed income

Risk budgets enforce discipline and prevent the portfolio from drifting into unintended exposures.

6. Step 5: Define Investment Selection Criteria

Your strategy must specify how you choose investments.

For Public Markets:

• Factor tilts (value, quality, momentum)
• Index funds vs. active managers
• Geographic exposure
• Cost constraints

For Private Markets:

• Manager selection criteria
• Minimum track record thresholds
• Fund size discipline
• Due diligence requirements
• Expected IRR/MOIC targets

For Real Assets:

• Cap rate targets
• Market selection rules
• Cash-on-cash minimums

Investment selection criteria make the portfolio systematic, not emotional.

7. Step 6: Establish Rebalancing Rules

Rebalancing is where portfolios become real, not theoretical.

Rebalancing Methods:

1. Periodic (e.g., quarterly or annually)
2. Threshold-based (e.g., 5% deviation)
3. Cash-flow-driven (use inflows/outflows to shift weights)

Purpose:

• lock in gains
• restore risk targets
• maintain strategy discipline

A portfolio without rebalancing becomes a different strategy over time.

8. Step 7: Create a Liquidity Management Plan

Especially critical when investing in alternatives.

Plan should specify:

• minimum cash reserves
• pacing plans for private fund commitments
• expected capital calls
• distribution timing assumptions
• liquidity stress scenarios

Institutions use liquidity models to avoid overcommitting to illiquid assets.

9. Step 8: Build a Monitoring & Reporting Framework

Define what metrics you track — and how often.

Portfolio-Level Metrics:

• total return
• volatility
• drawdown
• Sharpe/Sortino
• liquidity coverage
• diversification metrics

Private Markets Metrics:

• TVPI
• DPI
• IRR
• unfunded commitments

Risk Metrics:

• beta exposures
• concentration levels
• stress tests

Monitoring ensures alignment with IPS over time.

10. Step 9: Establish a Review and Governance Schedule

Your IPS states why you invest.
Your strategy shows how you invest.
Governance ensures you stay on track.

Best practices:

• Quarterly performance reviews
• Annual IPS review
• Annual rebalance of SAA
• Regular risk audits
• Manager performance evaluations

Institutions treat governance as a discipline — individuals should too.

11. Example: Turning an IPS Into a Strategy (Simplified)

IPS:

• Target return: 7%
• Volatility limit: 12%
• Liquidity need: 10% of portfolio
• Time horizon: 20 years
• Interest in alternatives

Strategy:

• 35% equities (global diversified)
• 20% private equity
• 15% real estate
• 10% private credit
• 10% fixed income
• 10% diversifiers

Rebalancing:

• threshold: ±4%
• schedule: semiannual

Liquidity reserve:

• 10% minimum
• capital call model integrated

Risk budget:

• 40% equity risk
• 30% private market risk
• 20% alternative strategies
• 10% fixed income risk

This is what a real, actionable strategy looks like.

Final Takeaway

An IPS gives clarity.
An investment strategy gives execution.

Turning an IPS into a strategy requires:

• a defined asset allocation
• risk budgeting
• investment criteria
• rebalancing rules
• liquidity planning
• monitoring & governance

This process transforms goals into disciplined, measurable, repeatable decision-making — the foundation of long-term portfolio success.