Pension fund asset allocation under the Markowitz model: the case of Social Security and National Insurance Trust (SSNIT)
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Date
April, 2016
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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