Why the strategy is a legal requirement

Trustees are required to prepare and implement a written Investment strategy and to review it regularly. The strategy must reflect the specific circumstances of the fund's members, not a generic template. The fund's actual investments must be consistent with the strategy on file.

Risk, return and diversification

The strategy must consider the risk and likely return of the fund's investments and the benefits of diversification. Diversification — spreading money across different asset types, sectors and, where relevant, geographies — reduces the impact of any single investment performing poorly. A fund is not compelled to diversify, but concentrating money in one asset, such as a single property, requires documentation of why that concentration is considered appropriate and how the added risk will be managed.

Liquidity and cash flow

A strategy must plan for the fund's need for cash. The fund must be able to pay its expenses — audit, administration, the supervisory levy — and, once members retire, minimum pension payments, without being forced to sell Assets at a bad time. Liquidity is often overlooked by funds heavily weighted to property, which cannot be sold in parts.

Insurance for members

Superannuation law specifically requires trustees to consider whether to hold insurance cover for each member as part of the investment strategy. This does not mean the fund must buy insurance, but it must actively consider the question and record the decision. Life, total and permanent disability, and income protection cover can all be relevant.

Members' circumstances and objectives

The strategy must be tailored to the members — their ages, how far they are from retirement, their Risk tolerance and their retirement goals. Where members are at different life stages, the strategy needs to accommodate how a single pool of investments serves people with different time horizons and needs.

Reviewing and documenting

A strategy is a living document. It should be reviewed regularly and whenever significant events occur — a market shift, a new member, a member retiring, or a large new investment. Each review, and the reasoning behind it, should be minuted.

As a hypothetical illustration, a fund buying a property that represents most of its assets might record: why the concentration is acceptable, how rent and other income will cover expenses and pension payments, what cash buffer will be held, and how the members' insurance needs are addressed given the Illiquid asset.

The strategy must respect the investment rules

A strategy cannot authorise something the law prohibits. Whatever it contains, the fund must still observe the Superannuation investment rules: the sole purpose test, the ban on lending to or financially assisting members and relatives, the in-house asset limit of 5% of the fund's total assets, the restrictions on acquiring assets from related parties, and the requirement to deal at arm's length.

Common issues to avoid

Recurring issues include using a generic template that does not reflect the members' actual circumstances, failing to review the strategy after a major change, allowing the fund's real holdings to drift away from what the strategy describes, and ignoring liquidity until a pension payment falls due.