What is an 'investment mandate'?

An investment mandate is fundamentally a set of guidelines that outlines the specific investment objectives and constraints for a portfolio. This document serves as a framework for decision-making, detailing what types of assets can be included, the level of risk that is acceptable, liquidity requirements, and sometimes social or ethical considerations as well.

The importance of an investment mandate lies in its role in guiding portfolio managers in their investment choices, ensuring that any actions taken align with the overall goals of the investors or the institution managing the assets. Additionally, it provides a basis for performance evaluation and accountability, as it establishes clear criteria against which the success of the investment strategy can be measured.

In contrast, the other choices describe concepts that are either too narrow or unrelated to the broader framework provided by an investment mandate. For instance, imposing a requirement to invest in high-risk assets does not encompass the diverse objectives and constraints that a mandate typically addresses. A strategy aimed at reducing portfolio size or suggesting trading activities also lacks the comprehensive nature of an investment mandate, which is designed to cover a broad range of parameters guiding investment decisions.