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Attempts to Deal with the Problem

Given the many defects of the investment committee as an investment instrument, families (and institutions) have come up with a variety of “fixes.” In this section I will describe the main approaches to taming investment committees, as well as the pros and cons of each “fix.”

Asset Allocation Guidelines and Investment Policy Statements

The usual approach to controlling investment committee behavior is for the full governing board or family to adopt asset allocation guidelines and a written investment policy statement, within whose parameters the investment committee is expected to act. Asset allocation guidelines and policy statements are essential tools in the management of capital, but as instruments for the control of investment committee behavior they are wholly inadequate. The reason is simple: Whenever an investment committee wants to act outside the constraining bounds of a written guideline or policy, the committee simply changes them (or, worse, ignores them). And who is to enforce compliance with these strictures? If the committee simply ignores the restraints, who will know about it? If the committee asks the board to change guidelines or policies, who on the board is going to argue with the investment committee, who are, after all, the anointed experts on such things?

Using Outside Experts to Populate the Investment Committee

Some large-endowed institutions and many wealthy families have given up on the in-house investment committee ...