Determinants of Financial Risk Management Strategies Adopted by Pension Fund Managers in Kenya
Ita, Matilda Wakere
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A pension fund is a common asset pool run by a financial intermediary on behalf of a company and its employees, to generate stable growth over the long term and provide pensions for the employees when they retire. It is also a fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments. As pension fund systems decrease and dependency ratios increase, risk management is becoming more complex in public and private pension plans. Pension funds should provide proper risk management to ensure that the retirement income of their members is safeguarded .To achieve this, pension funds should have appropriate risk management strategies that safeguard the replacement rate, investment safety and time based risks such as inflation. Risk management by pension funds should link directly to portfolio objectives and should maintain a balance between assets and liabilities in the context of funding, immunisation and the use of derivative securities. There is little evidence of schemes revising investment policies despite the severe market volatility experienced in recent years. This study sought to explore whether the size of the fund ,experience offund managers and the education levels of the trustees are determinants of the financial risk management strategies adopted by fund managers of pension schemes. The study design was descriptive survey and the target population was 19 pension fund management firms in Kenya. Data was collected using questionnaires and analysed using both descriptive and inferential statistics. The study revealed that there was a positive relationship between the size of the fund and choice of risk management strategy adopted by pension fund management firms in Kenya. The study also revealed that there was a positive relationship between trustees' education level, experience of fund managers and choice of risk management strategy adopted by pension fund management firms in Kenya. Thus, the study concludes that the size of the fund, the experience of fund managers and the trustee education levels determine the financial risk management strategies adopted by pension fund managers in Kenya. Future research in the pension's industry can be done especially on the area of trustee education and what impact it has on the performance of schemes. There is also an opportunity to study more the risk appetites for the trustees and their impact on risk management in the pension schemes.