Mitigation of risks by institutional equity investors at the Nairobi stock exchange

Abstract

The purpose of this study was to determine the risk mitigation practices employed by Fund Managers at the Nairobi Stock Exchange (NSE). To determine the risk mitigation practices employed fund managers at the Nairobi Stock Exchange. The study had two objectives: to identify the risk mitigation practices employed by fund managers at the NSE and to determine challenges faced by fund managers involved in risk mitigation at the Nairobi Stock Exchange. The population of the study consisted of thirteen Fund Managers and a census study was adopted. Data collection was by means of a semi-structured questionnaire and was analyzed using SPSS software; the findings were presented using tables. The findings reveal that the risk mitigation strategies adopted by the fund managers include due diligence, portfolio diversification and hedging. Growth potential of the stock, results of ratio analysis and management quality were used to evaluate suitable stock. Important risk acceptance criteria include level of sales, relationship. of the stock's owner to government, industry performance, market share of the stock owner and the stocks earning potential. Sophisticated investor activity and attitude were important in aiding risk mitigation. Challenges encountered in risk mitigation were insider trading and accounting impropriety. The study recommends that additional risk mitigating instruments such as zero coupon bonds, perpetuals and other bond variants, asset backed mortgage securities and debt equity hybrids be introduced to complement the risk mitigation situation at the Nairobi Stock Exchange