Pension fund asset allocation under the Markowitz model: the case of Social Security and National Insurance Trust (SSNIT)

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April, 2016
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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.
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