Organization factors affecting asset allocation by umbrella pension schemes in Kenya during COVID-19

Abstract

In Kenya, the pension industry's primary goal is to ensure wealth sustainability for its members. However, the continual low performance of the industry, particularly during and after COVID-19, has challenged this critical objective. This study used three theories being Modern Portfolio Theory, Arbitrage Portfolio theory and Risk-Return Trade-Off theory. The general objective of the study was to establish the organization factors affecting asset allocation by umbrella pension schemes in Kenya during COVID-19. The specific objectives were to determine the effect of size of the pension scheme, age of the pension scheme, market position of the pension scheme and type of pension scheme on asset allocation in Kenya. The target population was 44 fund managers of the 44 registered pension schemes in Kenya where a census of all the fund managers was used. The research employed both primary data and secondary data. The primary data was collected through a semi-structured online questionnaire. The secondary data was sourced from RBA industry reports and the annual reports of the umbrella pension schemes from years 2018 to 2023. The study used descriptive statistics and multivariate regression analysis was used to determine association between the company characteristics and the tactical and strategic allocations. The open-ended questions were analyzed through content analysis and presented in themes. It was established that asset allocation had variations over the years from the year 2018 to the year 2023. Before the COVID-19 pandemic, pension schemes adopted strategic, long-term asset allocation focused on growth and diversification. There existed a positive relationship between organization factors and changes at umbrella pension schemes in Kenya before, during and after COVID-19. The study concluded that the COVID-19 pandemic significantly influenced asset allocation changes within umbrella pension schemes in Kenya due to heightened uncertainty and market volatility caused by the pandemic by adjusting their investment strategies. Organizational factors affecting asset allocation changes included internal governance structures, risk management frameworks and decision-making processes within pension schemes. Management's ability to quickly reassess and realign asset allocation strategies based on real-time market data was critical in maintaining the financial stability of pension schemes during the pandemic. The study recommends that governments should develop policies that promote the diversification of pension fund investments and that encourage pension schemes to adopt flexible investment strategies that can quickly adapt to changing market conditions. Governments should also introduce regulatory frameworks that mandate stress testing of pension schemes' asset portfolios to ensure they can withstand economic shocks. Governments should provide incentives for pension schemes to invest in sustainable and resilient asset classes such as green bonds or infrastructure projects to reduce vulnerability to future crises. The study recommends that pension scheme managers implement robust risk management frameworks that allow for real-time monitoring and adjustment of asset allocation strategies during periods of market volatility.