ASSET ALLOCATION AND PROFITABILITY OF FUND MANAGERS REGISTERED BY RETIREMENT BENEFITS AUTHORITY KENYA
Linda A Odhiambo - Post Graduate Student: Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Margaret Kosgei - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Francis K. Gitagia - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Over the past decade, fund managers registered with Kenya’s Retirement Benefits Authority (RBA) have experienced declining and highly volatile profitability and returns on investment, raising concerns among financial practitioners and scholars. Persistent reductions in returns undermine investor confidence, erode value creation, and heighten systemic investment risk, underscoring the need to enhance profitability to ensure sustainable growth and stable investor returns. Despite professional expertise, Kenyan fund managers have struggled to optimize performance amid fluctuating market conditions. Since asset allocation decisions are widely recognized as critical determinants of profitability, this study examined the effect of asset allocation on the profitability of RBA-registered fund managers in Kenya. Specifically, the study assessed the influence of allocations to fixed income securities, equities, and real estate investments on profitability, while also evaluating the moderating role of market fluctuations. The analysis was grounded in established financial theories, including the Capital Asset Pricing Model (CAPM), the Fama–French Three-Factor Model, and the Arbitrage Pricing Theory (APT). A census of all 35 RBA-registered fund managers was undertaken, using secondary data drawn from audited financial statements covering the period 2015–2024. Panel regression analysis, Pearson correlation coefficients, and descriptive statistics were employed. Results revealed weak but positive correlations between asset allocation and profitability, with fixed income assets showing the strongest association. FGLS regression findings indicated that real estate investments had a strong and statistically significant positive effect on profitability, while fixed income securities exhibited a marginally significant positive influence. In contrast, equity investments had a significant negative effect on profitability. Furthermore, market volatility was found to positively moderate the relationship between asset allocation and profitability. The study concludes that increasing allocations to fixed income and real estate enhances profitability, whereas excessive exposure to equities diminishes financial performance.