The Assessment of Risk - Return Trade Off Among Private Equity Firms in Kenya

Abstract

The purpose of this study was to assess the risk and return trade off among private equity firms in Kenya. The study sought information from the AVCA data bank and various sources like publications journals , business magazines , websites of the firms under study and studies done by scholars in this field, The study adopted a descriptive research design which involved a census survey where secondary data was collected. This was a census study of the entire 14 private equity firms in Kenya. Before processing the data was checked for consistency. The data was analyzed using fama and French model this model was used to measure risk and return and establish what relationship exist between these variables. The researcher also used NSE index to calculate the market return proxy. Risk free rate was calculated from the Treasury bill rates downloaded from central bank of Kenya data bank. Causal comparative research was used to explore relationships between variables. Descriptive statistical method was used to analyse data using Statistical Package for Social Sciences (SPSS) and spreadsheets. The results are presented by use of tables and percentages The study revealed that the risk is very low for private equity firms in Kenya as the betas were negative. The study also found that the returns for the firms were quite impressive given the Treasury bill rate rose towards the end of the year 2011 and this contributed to negative beta for the firms. The study found that there is potential for higher returns given the high risk free rate of investment towards the end of 2011 and beginning of 2012. Firms with high return like centum investment had one of highest risk as compared to others. And a low return firm like the Acacia fund limited had one of the lowest risks, the principle of risk return trade off states that for a firm to get higher return it must be ready to take on higher risk.