The Effect of Assets Allocation on Retirement Benefits Fund Performance in Kenya
Abstract
Studies in the developed markets showed that assets allocation explained the variation
over time of the returns a pension schemes. It was therefore necessary to carry out a
study to establish if there is any relationship between assets allocation and returns of
pension schemes in Kenya. The objectives of the study were to determine how much of
the variations of returns among retirement benefits schemes in Kenya are explained by
asset allocation and also the level of returns which is explained by assets allocation.
A sample of 40 schemes was drawn from a population of 400 segregated occupational
schemes in Kenya. The secondary data on pension schemes assets allocation and returns
was obtained from Retirement benefits Authority was analyzed using regression
analysis and descriptive statistics. Regression was done on the fund returns to the
policy returns over time to determine the policy impact on variation over time.
Regression was also done on the compounded annual fund returns to the compounded
annual policy returns among schemes to determine the impact of assets allocation
differences of schemes on the variability of returns. To determine the level of returns which is explained by assets allocation, the researcher computed the ratio of the average
annualized total returns for each scheme to the average annualized policy returns.
The study shows that the variation in returns over time for pension schemes is
explained up to 62.4% by investment policy adopted by the trustees of the scheme.
Other factors such as securities selection, timing of investments and managers selection
explain the remainder. Differences in investment policies explained 37% of the
variations on the return among different schemes as shown on Appendix IV. Further
the study established that policy explains 100% of the total fund returns level of the
schemes in Kenya. This shows that on average, schemes are not adding value above
their policy benchmark because of the combination of the active management and the associated management expenses. It is possible for an investor who has the ability to
select superior managers before committing funds to earn above average returns.
Publisher
University of Nairobi, College of Humanities and Social Sciences, University of Nairobi
Description
MBA Project