Risk Management Strategies and Returns by Pension Funds in Kenya

Abstract

The purpose of the study was to determine the various risk management strategies given the different investment returns reported by various schemes considering the prevailing Kenyan environment. The study enlightens the stakeholders in the pension industry the effects of strategies arising from risk exposure. The data was obtained from both primary and secondary data sources, which included completion of a structured questionnaire, audited accounts, end of period returns and annual returns from the Retirement Benefit Authority. The data was analyzed by sorting out and editing the questionnaires identifying filled items, and those that were wrongly responded to. Exploratory data analyzed by way of statistical summaries, graphical representations, and frequency distribution tables. Coefficient of correlation measure was used to assess how much returns could be expected to be influenced by changes in risk strategies. The study revealed that. Pension fund regulations aim at promoting high levels of benefit security at an acceptable cost. Accounting standards in turn aim at ensuring the transparent disclosure of information to shareholders. Some of the key variables analyzed such as the funding cost and the volatility of contributions provide an order of magnitude for the potential cost of regulations. A full cost-benefit assessment of different regulatory regimes requires comparing these costs against the benefits, in terms of greater benefit security achieved. The study can be used to explain the reasons for important strategic policies on investment decisions and their effects on risk exposures. Some of the strategies outlined included, strategies on cost management, effective internal controls systems, compliance with the pension regulators and returns on performance measurement.