INSTITUTIONAL CHARACTERISTICS AND FINANCIAL PERFORMANCE OF COLLECTIVE INVESTMENT SCHEMES IN KENYA
INSTITUTIONAL CHARACTERISTICS AND FINANCIAL PERFORMANCE OF COLLECTIVE INVESTMENT SCHEMES IN KENYA
Brenda Akinyi Ochieng - Master of Science in Finance, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Richard Ngali, PhD, CFE - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. David Agong, PhD - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The purpose of this study was to explore the effect of institutional characteristics affecting financial performance of Collective Investment Schemes in Kenya. Specifically, the study looked into the effect of fund size, expense level, portfolio composition, and liquidity on the financial performance of Collective Investment Schemes in Kenya. The scope of study was confined, geographically, to Nairobi Kenya. Since all Collective Investment Schemes and regulatory bodies are headquartered in Nairobi and are relatively few, a comprehensive survey is considered feasible. The theories that guided the study are Markowitz Portfolio Theory, Liquidity Preference Theory, Social Facilitation Theory, and Capital Asset Pricing Model (CAPM). The research design employed in this study was descriptive research design inform of a survey. The sample frame of the study comprised of the 11 Collective Investment Schemes registered by CMA operating in Kenya. The study was based on a five year study period from the year 2018 to 2022. The researcher used secondary data as the main data collection instrument from income statements, statements of financial positions, records of interest rates, amount of money invested in mutual fund institutions, interests paid by mutual fund institutions, Nairobi Securities Exchange reports, among others. All these documents were sourced from the funds institutional portal and the CMA. The descriptive data was coded to enable the responses to be grouped into various categories. Descriptive statistics such as means and standard deviation were used to help in data analysis. Tables and other graphical presentations as appropriate were used to present the data collected for ease of understanding and analysis. Regression analysis was also used as it provided a mean of objectively assessing the degree of the relationship between the independent variables and the dependent variables in the prediction of the dependent variable. The study found that fund size (β=0.695, p-value=0.041<0.05), expense level (β=0.858, p-value=0.003<0.05), portfolio composition (β=0.703, p-value=0.034<0.05), and liquidity level (β=0.921, p-value=0.002<0.05) affect the financial performance of Collective Investment Schemes in Kenya significantly. The research concluded that liquidity level had the greatest effect on the financial performance of Collective Investment Schemes in Kenya, followed by expense level, then portfolio composition while fund size had the least effect on the Financial performance of Collective Investment Schemes in Kenya. The study recommended that the for fund managers to actively engage in more robust diversification policies that will help in strengthening the institutional characteristics within the firms. To maintain and enhance financial performance, the study recommends the Collective Investment Schemes to diversify the investment portfolio further. CMA can provide guidelines for diversified investment options that align with the risk profiles and expectations of investors. A well-diversified portfolio can mitigate risks and boost ROE. The declining trend in liquidity may raise concerns about the scheme's ability to meet short-term financial obligations. To address this, the research therefore recommends that CMA can promote best practices in liquidity management. The research also recommends Collective Investment Schemes in Kenya to rigorously comply with the regulations and guidelines set forth by the Capital Markets Authority. This includes meeting the legal requirements, reporting obligations, and operational standards prescribed by the regulatory authority.
