The Effect of Asset Allocation on the Financial Performance of Pension Funds in Kenya

Abstract

Studies around the area of asset allocation and financial performance of pension funds have mostly been conducted in developed countries. Very few local studies have focused on the effect of asset allocation on the financial performance of pension funds. This study therefore sought to fill the existing research gap by carrying out a survey study on the effect of asset allocation on the financial performance of pension funds by determining the effect of selection of each asset class on the overall performance of the pension scheme. This research was conducted through a descriptive survey study and utilized secondary data obtained from the RBA website on the asset allocation and financial performance of the pension schemes. From the study, it was found out that there is a positive correlation between a pension fund’s performance and the returns of the various asset classes with the strongest correlation being between fund performance and returns in other approved assets and quoted equities. Moreover, it was also found out that other factors such as the manager’s selection, timing of investments and securities selection within an asset class and whether the manager adopts an active style of management of the fund also have an impact on the financial performance of the pension funds