“The ‘appropriate strategy’ requirement will be satisfied if the trustees, when formulating the investment strategy, have regard to the whole circumstances of the fund. The critical issue [is] whether the expression ‘have regard to’ means ‘only have regard to’,” SUPERCentral said.

“The better view is that ‘have regard to’ does not impose an exclusivity requirement… This is simply not justified by the express words of the statutory provision. Further, there is no policy reason to impose an exclusivity requirement.”

Given that the wording of the regulation allowed trustees to consider investments they had outside their SMSF when looking at the need for diversification, it was likely that a non-diversified strategy could be appropriate for some trustees, the law firm said.

“It could be that an investment strategy which consists of investing in a single asset, which has been acquired by a limited recourse borrowing arrangement, is appropriate as each member of the superannuation fund has superannuation interests in other funds or investments outside the superannuation regime which provides sufficient diversification,” SUPERCentral said.

“If the trustees have documented the entire investment circumstances of each member and asset concentration risk has been counterbalanced by investments outside the particular fund, then a single asset or single asset class strategy would be an appropriate strategy.”

The law firm also pointed out that although trustees had a legal obligation to regularly review their investment strategy, that did not necessarily mean the strategy had to change.

“Not changing an investment strategy every year is not proof that there has been no review of the strategy. Trustees should, by way of resolution, identify certain key events in relation to the superannuation fund, which, if they occur, should trigger a review of the current investment strategy,” SUPERCentral said.

“The trigger events could include the death of a member, the commencement of a pension, the rollback of a pension, and the receipt of a material contributions or material benefit payment, [with] material identified by dollar value or percentage of the current fund value.

“Satisfaction of the regular review requirement can be evidenced by trustees’ resolutions and, if trigger events have been identified, what action was taken by trustees in response to the occurrence of the trigger event.”