What is investment policy?

Every society must have a social object, i.e. a definition of its activity. Investment funds have not only a social purpose, but also an investment policy. This is the precise definition of its investment activities. By defining its investment policy, the fund charts its path in its shareholdings.

Investment policy depends on the manager, his teams and his experience. A tech entrepreneur in Silicone Valley will be able to identify opportunities in this niche. Its investors would not want them to take risks by investing in infrastructure in Africa.

The more detailed the policy, the narrower the path will be. The right balance must be struck between the delineation of the manager's competence and the possibility of seizing unexpected opportunities.

Fund managers will therefore have a preference for a flexible investment policy, while their investors will want to tighten it on the manager’s competence. If a doctor runs a fund, he may want to extend his investment policy to companies in the food so as not to miss an opportunity in this nearby sector. Its investors will be reluctant to do so, considering that it must not move too far away from the medical profession.

   What elements are included in investment policy?

The fund indicates in which geographical area it intends to seek and acquire targets: it can focus on American, French and European Union companies. Sometimes the fund will focus on companies on all five continents.

It describes the sector of activity: technologies, infrastructure, real estate, energy, etc. Investment policy can be more or less precise: some will simply evoke technologies, others will be green technologies, others in biomass technologies.

In principle, targets should also be described. Investment policy can describe their size, size or maturity. Very often, investment policy is interested in the possible listing of its companies: a private equity fund will invest, as its name suggests, only in unlisted companies, while a hedge fund will only invest in listed securities.

The acquisition strategy is also detailed, depending on whether it is a majority, minority or perhaps a co-investment. Investment policy may also define a range as to the amounts invested.

   What are the consequences of non-compliance with investment policy?

The more accurate the investment policy, the more hands will be tied up. If it deviates from investment policy, it will be in breach of the statutes. Its contractual liability may be incurred. Worse still, its subscribers will no longer be required, in certain cases, to respond to slice calls.

However, the fund will always be able to extricate itself from its investment policy on a case-by-case basis. To do so, it must obtain the agreement of either its advisory committee or the community of its investors. He will have to explain what and, above all, why he would like to get out of the nails of his investment policy. He must convince his investors that the opportunity is too good and must not be missed, although apart from the milestones planned when setting up the fund.

The balance may lie in the dialogue between managers and their investors. Unfortunately, sometimes certain opportunities require a reactivity that does not allow for dialogue. Managers can take the risk of seizing the opportunity and then having this violation ratified a posteriori.

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