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Investment Policy Statement

An investment policy statement allows the investment committee to review the investment lineup using consistent, objective criteria. A requirement of ERISA is for the regular monitoring of investment performance by the plan fiduciaries.

The investment committee must be careful to document its findings and ensure that there is a process for freezing funds, adding funds, and replacing funds. Following is a sample list of criteria which may be used to measure performance:

  • One, three, and five-year performance vs a benchmark
  • Risk as measured by volatility as measured by standard deviation
  • Risk-adjusted returns such as the Sharpe Ratio
  • Manager tenure
  • Returns in excess of market returns as measured by Alpha
  • Turnover ratio
  • Operating expense