Risk management practices and financial performance of pension funds in Nairobi, Kenya

Abstract

Pension funds in Kenya have been recording poor performance which could be attributed to exposure to unmanaged risks due to weak enforcement of pension laws. The objective of this study was to examine the influence of risk management practices on financial performance of pension funds in Nairobi, Kenya. The study particularly sought to examine the influence of risk assessment, risk control, risk transfer and risk monitoring on financial performance of pension funds. Research was guided by enterprise risk management theory, liquidity preference theory, modern portfolio theory and contingency theory. Research adopted longitudinal research design, using objectively prepared questionnaires, collected data from 36 chief risk officers of the 36 targeted pension funds in Kenya. Pilot study was conducted in Machakos county pension fund to test for reliability and validity of research instruments. Data obtained was analysed through descriptive statistics and inferential statistics. Descriptive statistics included mean, frequency, percentage as well as standard deviations. Inferential statistics was conducted through Pearson correlation analysis and multiple regression analysis. The research found that risk assessment (β=0.867), risk control (β=0.844), risk transfer (β=0.717), risk monitoring (β=0.918) lead to significant changes in financial performance of pension funds in Kenya. The study concluded that risk assessment, risk control, risk transfer and risk monitoring significantly influenced financial performance of pension funds in Nairobi, Kenya. The study recommended that the management of pension funds needs to establish a robust risk assessment framework tailored to the specific needs and dynamics of pension funds in Kenya. The study further recommended that government of Kenya through the Retirement Benefits Authority should enhance regulatory oversight to ensure that pension funds adhere to prudent risk assessment practices. The research also recommended that government of Kenya through RBA should organize programs for training and workshops for pension fund managers and trustees.