A Survey of the Portfolio Performance Measures Used by Pension Funds in Kenya
Abstract
The study sought to establish the composite measures of portfolio performance used by pension
funds to manage portfolio performance. A survey research design was used to conduct the study.
A questionnaire was used to gather the data where the respondents were the investment fund
managers of pension funds in Kenya.
The data was analyzed using the standard package for social sciences ( SPSS) and presented
using frequency tables and graphs.
It was established that the main techniques used by investment managers to evaluate portfolio
performance were Treynors measure, Sharpes measure, Jensens measure, Bhattacharya and
Pfeiderer quadratic model ,Information ratio, Sweeney Grinbalt and Titman performance change
measure , Henrikson and Merton timing measure ratio and Value at risk performance measure.
Jensen’s measure was the most popular measure with 47.6% and 28.6% of the respondents
strongly agreeing and agreeing respectively that they used the measure to evaluate portfolio
performance. The Treynors measure was the next most popular measure with 47.6% of the
respondents strongly agreeing on the using the measure and 19.06% agreeing that they use the
measure to evaluate portfolio performance. Sharpe’s measure was the third most popular
measure of evaluating portfolio performance with 42.9% and 38.1% of respondents strongly
agreeing and agreeing respectively that they use the measure to evaluate portfolio performance.
The
Bhattacharya and Pfeiderer quadratic model equally had a large support with 42.8% of the
respondents strongly agreeing that they use the measure and 38.1% agreeing that they use the
measure to evaluate portfolio performance. Next was the Henrikson and Merton timing measure
ratio which was also quoted as one of the popular measures of portfolio performance with 42.8%
of respondents stating that they strongly agree that they use the measure and 28.6% stating that
they agree that they use the measure to evaluate portfolio performance.
The recommendations were as follows; Investment managers should use the Jensen’s measure, Treynors measure and Sharpe’s measure.
This is because most investment managers used these measures to evaluate portfolio
performance. Furthermore, these are the common composite measures of portfolio performance
that have been used to evaluate portfolio performance since the 1960s.
Next the Investment managers are advised to use a combination of measures to evaluate portfolio
performance. This is because it was noted no firm used a single measure to evaluate portfolio
performance but a combination of a number of measures depending on the circumstances
prevailing and the nature of investment involved.
Lastly though the value at risk measure was moderately supported by investment managers as a
measure of portfolio performance with 14.% strongly agreeing on using the measure and 47.6%
agreeing on using it to measure portfolio performance, it should be embraced by investment
managers to evaluate portfolio performance. This is because value at risk is an emerging issue
that involves attempting to provide a single measure summarizing the total risk in a portfolio of
financial assets for senior management. It has become widely used by corporate treasurers and
fund managers as well as financial institutions in most developed countries. It’s therefore
necessary for local fund and investment managers to embrace it as well.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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