Investment Strategies, Fund Size and Financial Performance of Defined Contribution Schemes in Kenya: Theoretical Review

Abstract

The government directive via Treasury Circular No. 18/2010 required State Corporations to convert from Defined Benefit Schemes (DBs) to Defined Contribution Schemes (DCs) design not later than 1st July 2011. This was to enable the schemes meet funding requirements as required by the retirement’s benefits authority (RBA). Investors for DCs in Kenya have been faced with scheme overreliance on conservative investment options which are skewed towards fund manager default investment strategies protecting the fund manager at the expense of the pension investor. This has resulted to pension members’ exposure to longevity and investment risks. It is thus essential that members adopt the right investment strategies for their assets class to ensure the highest return possible at maturity and also the minimum risk exposure to their fund investment. This paper provides a background, theoretical review and empirical review on DCs investment strategies, fund size and financial performance respectively in Kenya. This paper concludes that fund size significantly influences investment strategy choice resulting to improved financial performance for Defined Contribution Schemes in Kenya.