Self-managed superannuation funds (SMSF) that are top-heavy in a single investment asset class, have come under the eye of the Australian Taxation Office (ATO).
The ATO is worried that funds with 90% or more in one class are overly exposed to asset concentration risk which, in the event of a fall in the asset price, could lead to significant losses.
Nearly 18,000 trustees and their auditors have or are being contacted by the ATO to raise awareness about the risk of not adequately diversifying investment across classes.
These trustees are being asked to review their investment strategies and report the reasons behind their investment decisions.
“We’ll also ask trustees to have their documentation ready for their SMSF’s approved auditor for their next audit to help the auditor form an opinion on the fund’s compliance with these requirements,” the ATO said.
Diversification, or investing in a range of assets and asset classes, is a requirement of our superannuation laws.
The Commonwealth Minister for Finance, Senator Mathias Cormann, recently told Parliament: “The ATO has responsibility to ensure trustees comply with their obligations and the super laws, and one of those laws requires super fund trustees to have an investment strategy in place that has given due consideration to a number of risks, including the risk of inadequate diversification.”