Factors Affecting the Equity Allocation Decisions Made by Trustees and Fund Managers of Pension Scheme Portfolios in Kenya
Abstract
This study sought to investigate factors influencing investments in equities by pension
schemes in Kenya, from the perspective of trustees and fund managers, these being the
two main groups responsible for the formulation and implementation of pension scheme
investment policies.
A survey of trustees and CEOs in fund management organizations was carried out with a
view to determining, in the first place, their general attitudes towards equities as an asset
category. Specifically, the survey sought the cognitive, emotional and behavioural
reactions of the said respondents, as the three main attitudinal elements in psychology.
Secondly, the study sought the main factor considerations shaping the attitudes of the
trustees and fund managers in Kenya towards equity. A third objective was the
determination of the past performance of pension scheme equity investments, in terms of
risks and returns, as a likely determinant of current equity investment policies of pension
schemes. For this objective, the returns and risks on selected stocks quoted on the Nairobi
Stock Exchange for a period of seven years (1996 - 2002) were analyzed as a proxy.
The respondents were overly concerned with the perceived excessive risks in equity
relative to other alternative investments including Government securities, corporate
bonds and real estate.
The most important corporate considerations made in contemplating equity investments
were given as company profitability and the historical dividend payout ratio. The least
important factors were found to be the level of industrial maturity and the size of the
industry in which the investee company operates.
The annual average gains on the individual selected stocks over the period studied were
actually -2.03%.The average risk per stock (computed as the standard deviation of
returns) was quite high, 44.89% .This finding was consistent with the respondents' belief
that equity investments are highly risky relative to their returns.
This is an area on which there are few studies, making this a further contribution to
studies on pension scheme portfolios in Kenya.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business