School Of Business And Public Management At KCA University November 2014
Kenyans have a tendency of not taking care of their old people and that little attention is
ever given to the old once they retire from their respective jobs after many years of
service. This has given rise to studies that try to find out the root cause of people not
saving well for their old age or if they do, why their returns are not as beneficial as they
had wished for. The objective of the study is therefore to establish the risk-return impact
on pension funds in Kenya through various savings schemes known as Pension
Schemes/Funds (Pension Schemes and Funds to be used interchangeably).This study
used empirical design to investigate how pension investment risks affect their return by
use of Sharpe Ratio and finding out the relationship between pension fund returns and
asset allocation. A sample of 45 pensions funds registered in Nairobi County by
Retirements Benefits Authority was selected and historical monthly performance or
returns data for all investments used i.e. fixed income, equities and offshore. Risk
adjustment measures of Standard Deviation and Sharpe Ratio were applied to test the
riskiness of the investments. Analysis of the data collected was summarized using tables
in order to derive the study findings. Accordingly, the study viewed risk-returns in terms
of the ratios and returns as per the sectors in investments for Pensions Funds in 45
schemes based Nairobi Kenya. The initial analysis showed that there is a link between
the asset allocation and risk factor at all the schemes with a high mean of 1.24%.
However, the difference in returns for the various schemes seems to be insignificant. This
implies that the assumed risks by policy makers might not have existed, but to be sure of
the relationship between risk return and decision making, the regression results were
clearly indicative that the variables can be linked. The study concludes that investment
decisions should be based on the best estimates of as it remains a factor in the calculation
of returns and is therefore prudent to use risk measures such as Sharpe Ratio in making
investment decisions. Policy makers such as RBA, CMA, CBK and Ministry of Finance
should review impact of risk on market development.