Quoted Equity Investments and Financial Performance of Pension Funds in Kenya

Abstract

Purpose: This study is inspired by the need to investigate the contribution of quoted equity to financial performance of pension funds in Kenya
 Methodology: The study used a descriptive research design with data collection form used to gather secondary data. The target population for this study was 1,258 registered schemes as per RBA as of 31 December 2021. The sample consisted of 294 registered schemes. Secondary data was obtained from the Retirement Benefits Authority (RBA) for the study variables for the six-year period between 2016- 2021. The data was subjected to diagnostic tests and analyzed using multiple linear regression method.
 Findings: Regression results on the influence of quoted equity on the performance of pension funds shows that the coefficient had a negative and significant impact on performance of firms, p value 0.000 which was smaller than 0.05 level of significance. This shows that quoted equity had a negative impact on the performance of firms. In addition, 16.6% of the variation in performance of firms is explained by quoted equity. The study findings echo policy discourses suggesting that quoted equity investments may be riskier and therefore need for increased risk premium to cushion investors against increased risks
 Unique Contributions to Theory, Practice and Policy: The study validates the modern portfolio theory whose premise is selection and construction of asset portfolios to maximize the portfolio expected return and the concurrently minimize the attendant risk. The study can help policy makers such as Retirement Benefits Authority (RBA) in Kenya review investment ceilings imposed on quoted equity The trustees and fund managers can use the study findings to determine proportion of quoted equity investments in the investment policy that is optimal given risk characteristic of quoted equity as an asset class.

Asset Class Selection and Financial Performance of Registered Umbrella Retirement Benefits Schemes in Kenya

“…According to the report, equity investments were deemed risky and significantly and negatively impacted Kenyan pension funds' financial performance. A study by Boyante, Muturi, and Gekara (2022) on the effect of Quoted Equity Investments on the Financial Performance of Pension Funds in Kenya is also supported by the research. The findings of the research demonstrated that pension fund performance was significantly impacted negatively by equities investments, suggesting that the asset class entailed a high degree of risk and that a larger risk premium was necessary to protect investors from both perceived and actual dangers.…”