Lawyer Rodrigo Pimentel, whose practice encompasses the asset and succession planning needs of business-owning families, observes that many families spend years organizing their companies’ corporate structures but manage their financial investments without any written rules. Investments are made based on the opportunities available at the time, recommendations from an advisor, or the preferences of the family member with the greatest influence.
During periods of market turbulence, the consequences often become apparent. Excessive concentration of portfolios in a small number of assets, investments in illiquid products when the family needs access to funds, and failure to consider the risk profiles of all heirs when making decisions can lead to losses and mistrust among family members.
An investment policy is the document that sets out the guidelines to be followed, including the objectives to be achieved, the acceptable level of risk, and those responsible for making decisions. It turns individual preferences into collective guidelines, protecting family wealth against hasty decisions.
What Should an Investment Policy Include?
The starting point for establishing a successful investment strategy is to define clear objectives. Family members must understand the purpose of the portfolio in question. It is essential to clarify whether the intention is to generate income for the heirs or preserve capital for future generations. In addition, the family must determine whether the objective is to finance business expansion. Each goal requires a specific time horizon and a different level of risk tolerance.
From there, the policy establishes objective limits. Among the most relevant are:
- Risk: Maximum acceptable losses and the proportion of volatile assets, such as stocks and multi-strategy funds, relative to the total portfolio.
- Liquidity: The minimum portion held in investments that can be redeemed quickly to cover expenses, taxes, and investment opportunities.
- Concentration: Limits by issuer, asset manager, financial institution, sector, and asset class, preventing a single event from jeopardizing the family’s wealth.
- Currency and jurisdiction: The proportion of assets held abroad and in foreign currencies, taking into account where the heirs live and where the family’s expenses arise.
- Prohibited or restricted assets: Products the family chooses not to use because of their complexity, risk, or incompatibility with its values.
International wealth structuring is a topic that requires particular attention when family members live abroad. Lawyer Rodrigo Pimentel, a specialist in this field, emphasizes that currency and jurisdiction limits must be carefully considered. Investments abroad are subject to specific tax and reporting regulations, and the policy must account for these implications before assets are allocated.
Who Decides on the Investment Policy, and How Should It Be Enforced?
A policy is only effective if someone is responsible for implementing and monitoring it. Investment committees are often tasked with approving allocations, monitoring performance, and proposing adjustments. According to Dr. Rodrigo Gonçalves Pimentel, a specialist in international wealth structuring, the committee’s responsibilities should be set out in the governing documents of the holding company or investment vehicle that holds the assets.
In addition, it is essential to establish review intervals and rebalancing rules. The policy should specify how and when the portfolio must be brought back into compliance, avoiding exceptions. For Rodrigo Gonçalves Pimentel, clear compliance rules protect managers by giving them a defined mandate and preventing them from having to respond to individual requests.
The perspective of Sideni Soncini Pimentel, a lawyer and retired appellate judge with more than four decades of judicial experience, helps illustrate the importance of this formalization. Losses on investments managed without established criteria frequently lead to requests for accountings and questions about responsibility for the decisions made. Written rules reduce the scope for disputes.
Lawyer Rodrigo Pimentel also emphasizes that the investment policy must align with succession planning. The structure of each investment affects the transfer of assets to heirs, tax payments, and the liquidity available to cover the costs of a potential probate proceeding.
Rules Before Capital
Furthermore, Sideni Soncini Pimentel, who moved into strategic and advisory legal practice after his judicial career, stresses that decisions made under previously agreed-upon rules are more likely to be accepted even when the outcome is negative, because no one can claim that the risk was assumed without their consent.
Without a clear policy, a family portfolio becomes a limited option in terms of flexibility, lacking clear leadership and purpose. Establishing risk, liquidity, and concentration limits before making the first allocation allows the family to discuss results based on objective criteria, avoiding subsequent regret.
About the Experts
Rodrigo Gonçalves Pimentel is a lawyer, entrepreneur, and partner at Pimentel & Mochi Advogados Associados. His practice involves corporate, asset, corporate governance, and succession matters relating to entrepreneurs and business-owning families.
Sideni Soncini Pimentel is a lawyer, retired appellate judge, and member of Pimentel & Mochi Advogados Associados. After a career spanning more than four decades in the judiciary, he began a new professional chapter in legal practice, focusing on advisory and strategic matters.
