Investment Committee (IC)

Investment Committee Investment Committee (IC) is a collegial body responsible for making key investment decisions. It is a “system of checks and balances” that protects the portfolio from impulsive decisions by individuals and ensures consistency of strategy. Why is the committee more important than genius? History knows examples of brilliant investors who went bankrupt due to one wrong decision. The committee solves several problems: Cognitive biases — one person is susceptible to overconfidence, anchoring, confirmation bias Emotional decisions — fear and greed lead to selling at the bottom and buying at the peak Limited expertise — no one is equally well-versed in all asset classes Operational risk — what if the CIO falls ill or resigns?

Composition of the Investment Committee

Role	Function	Voting right
Chairman of IC	Moderates discussions, final word in case of tie, approves agenda	Yes (decisive)
CIO	Presents investment ideas and strategy, justifies positions	Yes
Risk Manager (CRO)	Analyzes risks of proposals, veto right on exceeding limits	Yes
Compliance Officer	Checks compliance with regulatory requirements and IPS	Advisory
Head of Research	Presents analytical materials, macro overview	Advisory
External Member	Independent perspective, challenge function	Yes (in some structures)

IC Meeting Procedure
Preparation (48 hours in advance) — CIO sends agenda and materials to all members
Opening — Chairman announces quorum, approves agenda
Market overview — Head of Research presents macro picture
Risk report — CRO shows current exposures, VaR, limits
CIO proposals — Presentation of new ideas with justification
Discussion and challenge — Each member asks questions, expresses doubts
Voting — Decision is made by majority (or unanimously for major decisions)
Minute-taking — Secretary records decisions, votes, justifications

Types of IC Decisions

Category	Examples	Frequency
Strategic	Changing SAA, adding a new asset class	1-2 times a year
Tactical	Over/underweight sectors, portfolio duration	Monthly
Operational	Approval of counterparties, new instruments	As needed
Emergency	Response to crisis, margin call	Immediately (ad hoc)

“Four Eyes” Principle
Critically important decisions require approval from at least two independent persons:

Transactions above a certain threshold
Use of leverage
Investments in illiquid assets
Changing the benchmark

Documentation: Why is this Critical
IC minutes are legally significant documents. They protect:

Investors — proof of fiduciary duty
Managers — protection from accusations of negligence
The organization — compliance with regulatory requirements (DFSA, SEC, FCA)

Red Flags: When IC Doesn’t Work

CIO dominates, committee merely “rubber stamps” decisions
No documented justifications
Risk manager lacks veto right
Meetings are conducted formally, without real discussion
No dispute escalation mechanism