Why Trustees Shy Away From Investing in Riskier Asset Classes: The Kenyan Case

Abstract

This paper seeks to examine the influence of trustees on the choice of investment classes, for the Kenyan case. We ask how trustees make decisions in investing in two classes allowed by the Retirement Benefits Act (2014) of Kenya which are considered relatively riskier: Private equity and Real Estate: and control for personal investment behavioral biases. We perform a logit regression against factors which include: How long one has been a trustee, size of the fund, level of knowledge on what private equity is, their perception on the riskiness of private equity and demographic factors. We find that trustees mainly are hesitant to invest in these risky assets mainly due to the pension fund characteristics, which do not allow them to invest in the risky assets. Moreover, trustees carry their personal risk characteristics while investing the pension fund assets, and thus influence decisions made on the board. We found that most trustees are risk averse, and consequently avoid investing the funds ' assets in ventures that the return is not certain.