THE RELATIONSHIP BETWEEN ASSET ALLOCATION AND FUND PERFORMANCE OF OCCUPATIONAL PENSION SCHEMES IN KENYA
Evelyne Nyokabi Wanjohi - Master of Science, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Peter Wang’ombe Kariuki - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
In Kenya, pension schemes are set up with an aim of promoting financial independence of retirees and alleviating poverty at old age. To achieve this, pension schemes through trustees are mandated to come up with Investment Policies that determine the asset allocation of their portfolio. The growth of pension scheme funds is attributed to good Investment Policies as it leads to increasing performance and returns of the scheme whereas poor investment policies may lead to negative returns which in the long run have an impact on the principal contribution and hence eroding the scheme’s fund value. It is with this in mind that the study sought to establish the relationship between asset allocation and fund performance of occupational pension schemes. Moreover, the study determined the contribution of each asset class to the performance of schemes. The study was carried out to provide insight to the government and all pension stake holders on screening and adoption of the right investment policies and strategies to effectively grow the pensioner’s wealth. It employed a descriptive research design with secondary panel data obtained from a sample 20 occupational schemes for a period of four years from 2013 to 2016. The schemes were segregated in nature, with a fund value of over 200 million as at year end 2016 and under the management of the same fund manager and administrator for the period of study. Secondary data on asset allocation and returns was obtained from the schemes financial statements and filled fund managers reports with the Retirement Benefit Authority. Statistical Analysis tests; Descriptive, Correlation, Regression and Analysis of Variance (ANOVA) were carried out on the data and inferences made. From a population of 242 fully compliant segregated schemes the finding of the study showed that asset allocation accounted for the highest percentage of the fund performance of occupational pension scheme in Kenya. Other factors such as asset class timing, choice of investment manager and security selection were seen to also affect the scheme performances. Further, there existed a relationship between different asset classes and fund performance of occupational pension scheme with offshore investment having the strongest correlation. The study recommended the need for flexibility on the quantitative asset allocation limits on asset classes which limit the fund manager’s ability to make investment decision based on risk -return analysis.
