Pension fund asset allocation under the Markowitz model: The case of Social Security and National Insurance Trust (Ssnit)
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Date
2016-04
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KNUST
Abstract
Investors all over the world and most especially pension fund managers will all the
time try to reduce risk and achieve higher returns as well. The managing of an
investment portfolio requires careful selection of assets to invest in, as well as
managing the proportions of funds to be channelled into a particular asset. This calls
for the rational behind this study. I will investigate the various investments
undertaken by Ghana’s state pension fund scheme, the Social Security and National
Insurance Trust (SSNIT). The data used was generated from the trust’s financial
statements spanning from 2004 to 2013. The methodology used here was the
Morkowitz Model. This model allowed us to assign weights to various investments
classes by transposing the expected returns and risk associated with them. The result
showed that should the pension fund be interested in minimizing the portfolio
expected risk at a given return of 18.40% from their pool of investments, then they
should invest 53.65% in students’ loan, 19.56% in short term investment, 19.55% in
properties, 5.87% in investment available for sale, 1.37% in investment held to
maturity, zero percent in treasury bills and loans & receivables On the other hand if
the fund wants to maximize the portfolio expected returns at a given risk level of
3.60% (being the lowest risk for all the assets), then 28.85% of the total investment
portfolio is to be channelled to the risk free asset, 26.76% to student loans, 24.19%
to short term investments, 10.3% to properties, 9.22% to investment available for
sale, 0.96% to loans and receivables and zero to investment held to maturity.
Description
A thesis submitted to the Department of Mathematics, Kwame Nkrumah University of Science and Technology in
partial fulfillment of the requirement for the degree of MSc. Actuarial Science.