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Pension Funds Administrators take investment decisions and apply investment strategiesin order to meet the various needs of retirees. The process of selecting investment is a complicated one, but funds which are invested on behalf of potential retirees must follow the line of the best and appropriate investment strategy to enhance security and ensure positive performance. Wrong investment decision, poor assessment of pension liabilities, insufficient funding arrangements, non-preservation of benefits, inadequate safeguard of the funds to guarantee prompt payment of pension and other benefits to retirees and serious structural problems were the major concern of pension management in Nigeria. This study investigated and evaluated the effect investment strategies on fund performance of selected Pension Fund Administrators in Lagos State Nigeria.


The study adopted survey research design. The target population of the research consisted of 469 professional employees from the selected pension fund administrators (PFA) because they understand the concepts of the different investment strategies.Yamane’s sampling formula was used to arrive at a sample size of 335 and simple random sampling technique was adopted. A structured questionnaire was administered and returned with 100% response rate. The Cronbach alpha reliability for the major constructs ranged between 0.77 and 0.94. The data gathered was analyzed using simple linear regressions analysis.


The findings revealed that there was a significant relationship between Investment Strategies and Fund Performance. All the investment strategies variables significantly affected fund performance. Investment style had significant effect on fund performance (R=0.291; R2 = 0.084; p=0.000), Asset allocation had significant effect on fund performance (R=0.810; R2 = 0.656; p=0.000), Risk profile had significant effect on fund performance (R=0.216; R2 = 0.047; p=0.000, Regulatory influence had significant effect on fund performance (R=0.169; R2 = 0.029; p=0.002).


The study concluded that Investment strategiesof the pension fund administrators (PFAs) had significanteffects on fund performance and that excellent fund performance is largely dependent on the investment proficiency of pension fund administrators (PFAs) as well as the investment strategies adopted.It was recommended that models need to be constructed and experiences need to be streamlined to assist in the evaluation of investment decisions deployed on pension funds.


Keywords: Pension Funds, Investment Strategies, Fund Performance, Investment Style, Asset

Allocation, Risk Profile, Regulatory Influence.


Word Count 368



Content                                                                                                                                   Page

Title Page                                                                                                                                i

Certification                                                                                                                            ii

Dedication                                                                                                                              iii

Acknowledgements                                                                                                                iv

Abstract                                                                                                                                  v

Table of Contents                                                                                                                   vi

List of Tables                                                                                                                          ix

List of Figures                                                                                                                         x



  • Background to the Study             1
  • Statement of the Problem                                                                                           4
  • Objective of the Study                                                                                               5

1.4       Research Questions                                                                                                     6

1.5       Hypotheses                                                                                                                 6

1.6       Scope of the Study                                                                                                     6

1.7       Significance of the Study                                                                                           6

1.8       Operationalization of Variables                                                                                  7

1.9       Operational Definition of Terms                                                                                 8



2.1       Conceptual Review                                                                                                     9

2.1.1    Overview of Investment Strategies                                                                            9 Investment Style                                                                                                         10 Asset Allocation (ASA)                                                                                              16

  • Risk Profile             22
  • Regulatory Influence                                                                                                 23

2.1.2    Overview of Fund Performance                                                                                 25

  • Theoretical Review             27

Content                                                                                                                                   Page

2.2.1    Modern Portfolio Theory (MPT)                                                                                27

2.2.2    Capital Asset Pricing Model (CAPM)                                                                        29

2.2.3    Fama and French Three Factor Model                                                                        30

2.3       Empirical Review                                                                                                        32

2.4       Summary and Gaps in Literature                                                                                38

2.5       Conceptual Model                                                                                                      40



3.1       Research Design                                                                                                         42

3.2       Population                                                                                                                   42

3.3       Sample size and sampling Technique                                                              43

3.4       Sources of Data                                                                                                          44

3.5       Research Instrument                                                                                                   44

3.6       Pilot Study                                                                                                                  44

3.6.1    Validity of Instrument                                                                                                            45

3.6.2    Reliability of Instrument                                                                                             45

3.7       Method of Data Collection                                                                                         46

3.8       Method of Data Analysis                                                                                           46

3.8.1    Research Model                                                                                                          47

3.8.2    Apriori Expectation                                                                                                    48

3.9       Ethical Consideration                                                                                                 48




4.0     Introduction                                                                                                                  50

4.1     Section A: Data Analysis of Respondents Demographic Information             50

4.1.1   Age                                                                                                                              50

4.1.2   Gender                                                                                                                         51

4.1.3   Marital Status                                                                                                               51

Content                                                                                                                                   Page

4.2      Section B: Data Analysis, Interpretation and Discussion                                            52

4.2.1   Fund Performance                                                                                                       53

4.2.2   Descriptive Analysis of Research Question One                                                         54

4.2.3   Descriptive Analysis of Research Question Two                                                        59

4.2.4   Descriptive Analysis of Research Question Three                                                       64

4.2.5   Descriptive Analysis of Research Question Four                                                        67

4.3      Summary of Findings                                                                                                  70



5.1       Summary                                                                                                                     72

  • Conclusion             74

5.3       Recommendations                                                                                                      75

5.4       Contributions to Knowledge                                                                                      77

5.4.1    Concepts                                                                                                                     77

5.4.2    Empirics                                                                                                                      77

5.4.3    Theory                                                                                                                         78

5.5       Implications of Findings                                                                                             78

5.6       Limitation of the Study                                                                                              79

5.7       Suggestion for Further Studies                                                                                   80


REFERENCES                                                                                                                    81       

APPENDIX                                                                                                                           87


Table                                                                                                                                       Page

3.1 Population                                                                                                                        42

3.2 Sample sizes for the Selected Pension Firms                                                                   43

3.3 Coefficient of Reliability Statistics                                                                                 46

3.4 Description of Apriori expectation                                                                                  48

4.1: Age Distribution of Respondents                                                                                   50

4.2 Marital Status of Respondents                                                                                        51

4.3 Academic Qualification                                                                                                   52

4.4 Responses on Fund Performance                                                                         53

4.5 Responses on Investment Style                                                                                       55

4.6: Result of Test between Investment style and fund performance of PFAs                    57

4.7 Responses on Asset Allocation Strategy                                                                         59

4.8: Result of Test between Asset allocation and fund performance of PFAs                     62

4.9 Responses on Risk Profile                                                                                               64

4.10: Result of Test between Risk profile and fund performance of PFAs                          65

4.11 Responses on Regulatory Influence                                                                              67

4.12: Result of Test between Regulatory influence and fund performance                         68

4.13 Summary of Findings                                                                                                    71


Figure                                                                                                                                      Page

2.1: Researcher Conceptual Model                                                                                        40

3.1: Conceptual Model                                                                                                          47

4.1: Gender of Respondents                                                                                                  51



  • Background to the Study

Over the past decades, pension fund management and administration has received increased responsiveness in many countries (OECD, 2015). In recent times, policy makers in many countries have been attracted to pension as a source of an enabler for funded retirement savings by the maturing workforce (World Bank, 1994), opting for numerous forms of pension scheme. Nigeria embraced the contributory pension scheme subsequent upon the pension reform of 2004. In the contributory scheme, employers and their employees contribute a percentage of the employee’s monthly incomes to a retirement savings accounts from which they would after retirement draw their pension benefits after retirement. Pension funds are currently amongst the key institutional investment in the world financial and capital markets (Klumpes & Mason, 2000).


Pension Fund Administrators (PFAs) invest monies on behalf of retirees in equities and other investment securities and assets to ensure increased values.  They also save for retirees, preserve assets, fund a pension plan and meet retiree’s spending requirements (Wallick, Julieann, Christos & Joanne, 2012). To meet the various needs of retirees or to ensure the performance of funds that is within existing regulatory provisions, PFAs adopt investment decisions and apply investment strategies or process, such as investment style, asset allocation, risk profiling of funds. A good investment strategy begins with the right allocation of assets that achieves the objectives of the portfolio. The allocation must be centered on realistic expectations for risk and returns, and should use varied investments in order to do away with risks that are avoidable (Davis, Francis & Glenn, 2007).


Investments involve risk, thus PFAs need to strike a balance between risk and potential return on investment through their selected portfolio holdings (Wallick et al., 2012). It is unethical and improper to carelessly invest pension funds on bad or ill-advised investment, because these are entitlement of workers at point of exit (retirement time). Due to the volatility and sensitivity of the pension system especially in a developing country like Nigeria, successive government have initiated reforms so that most employees will avoid not having enough money to cater for their retirement (Awosika, 2009). For these reforms, it became necessary that they discard old benefit schemes where government makes provision to guaranteeretirement benefits toward achieving a pay-as-you-go scheme that are either fully funded or partially funded, where risks are borne by contributors, and not the government (Amoo, 2008). The previously used scheme lost its acceptability because of factors such as demographic developments, future liabilities that are unfunded, multifarious fiscal deficits and lower benefits for pensioners (Amoo, 2008).


The Pension Reforms Act (PRA, 2004) was created with contributions from all stakeholders.  This act is completely premised on individual accounts which are held and managed privately by Pension Fund Administrators (PFAs). PFAs are financial institutions established with the aim of accruing funds in order to meet projected pension obligations of workers; they are saddled with the duty of devoting pension contributions to ensure that profits are made (National Pension Commission, 2008). Thus, the bleak future of the retirees from public and private service made it paramount for policy formulators in the country to set up pension funds, which is contributory in nature, with part obligation on the employee and part on the employers. The Pension Fund Administrators were licensed to properly manage potential retiree’s funds.


The new pension scheme appears to be on firmer grounds than the previous ones, however for the funds to perform excellently, it still largely depends on the investment proficiency of pension fund administrators (PFAs) and investment strategies adopted by the PFAs. Despite the establishment of PFAs the process of selecting investment is still complicated. On the average, investment selection have to go through asset allocation (a method of determining how to allot an investor’s wealth among different countries and asset classes for investment purposes) to Strategic asset allocation (which involves outlining and fixing portfolio asset allocations from the inception, based on historical performance data) and investment style (Chen, Gary & Kaplan, 2002; Reilly & Brown, 2012). If this process are not understood and properly followed it will result in poor fund performance.


Anthony and Mustafa (2010) assert that investment decision is not just a mathematical selection of expected returns on various risk profile, but a whole range of factors – such as political, economic, social factors. Despite the need to risk profile a fund, it does not guarantee capital security or a level of performance. Risk profiling entails identifying the level of risk with respect to investment for a client, bearing in mind, required risk, the client’s ability and strength to accommodate risk, and the toleration level for risk (Resnik, 2016). These concerns, along with numerous dynamics have enormous consequences on investment choices for Pension Fund administrators. PFAs’ are entities that have the final say, in terms of decision making. The duty of pension administrators entails allocation of assets, industry by industry, on a yearly basis to ensure that they get maximum returns on investment benchmarks pre-assessed on a particular fund. Allocation of assets and investment style verdicts that are reached by handlers of these funds for a long-term basis, stand as the bedrock of what makes up the advantages to plan members, and also help give form to the economy of a nation substantially (Tsado & Guru, 2011).


Fund managers can be inactive, that is, just buying and holding funds or passively indexing just to reduce transaction cost. On the other hand, fund managers can employ an active investing strategy, a situation where they invest in a fund that is momentum trading or “actively managed” (an attempt to outperform benchmark indexes) instead of duplicating market’s returns, as seen with index-tracking or passive investment funds (Blankfein & Cohn, 2010). Studies have also shown that on the average, active funds cannot beat the market, thus corroborating the findings of critics (Malkiel, 2003). Some authors like Morey (2005), Morey & Gottesman (2006), Huebscher (2009), and Philips; Kinniry Jr.; Walker; Schlanger; Hirt (2015), found dissimilar outcomes on fund rating. Higher-rated funds were found to outpace lower-rated funds.


Furthermore, according to Reilly and Brown (2012) the highest compounded returns from the broad asset class, such as  bonds, Treasury bonds, corporate bonds, and high-yield bonds, in the long run, will most likely accrue to those investors with larger exposures to risky assets. The various moves made by PFAs, to make investment in a certain asset class or otherwise hinge on different reasons and their significance (Tsado & Guru, 2011). Also, there is a division of thought and experience in the world of investing, and there are studies suggesting that both sides are right. However, there is also a division among practitioners as to which strategy is the best. There exists no backdoor or guarantees to being successful when it comes to investing, however, sustaining a realistic and methodical attitude to the art of investment may in some cases enhance the possibilities of investment accomplishments as time progresses (Reilly & Brown, 2012).


For accurate management of pension by Pension fund administrators (PFA), it is imperative that funds which are invested on behalf of the client (potential retirees), must toe the line of the best and appropriate investment strategy to enhance fund security and performance. The Investment strategy adopted by the PFA goes a long way in determining how successful they perform, otherwise retirees both from the public and private sector may face a miserable future (Ayegba, James & Odoh, 2013). This study intends to explore and investigate deeply, the impact, importance and extents that investment strategies go to in order to engender fund performance.


  • Statement of the Problem

Sule and Ezugwu (2009) assert that in the past it has been established that some of the issues believed to be responsible for the difficulty in accessing retirement benefits are poor documentation of work history, lack of transparency and accountability by the operators of the pension funds, and non-compliance by the operators of the pension funds to the laid down processes in the scheme. At present, the new pension reform of 2014 confirms that the continuous review of pension’s regulations and gratuities in the country without a well structured approach for funding the system has become a key challenge that is creating untold economic hardship for retirees (Ayegba, James & Odoh, 2013). This implies a researchable gap in the operation of funds in Nigeria.


One major area of study where theory do not match with practice or investment fails to deliver consistent fund performance in literature is the investment strategy of fund administrators. The close connection between poorly performing fund and different investment strategies (such as strategic tactical and integrated asset allocation, risk profile and regulatory influence) employed by practitioners is still an evolving area of study. Studies have shown that in some situations regulatory influence positively impact fund performance. In some other cases, regulatory influence have a deleterious effect on fund performance. For instance, German Pensions at the mercy of risk-based regulations, commonly have less than the permitted maximum of 35% in equities (Davis, 2013). But when the limits are enforced it leads to lower performance. Thus, regulations which aim to protect fund can also limits investors from achieving higher fund performance.


Stone, Chen, Marsella, Rebekah, Nicholas, Paul and Michael (2015) posit that active strategies are not necessary factors that can be used to aim at return maximization; instead, they centre on risk mitigation, income generation, or social causes, amongst other factors. In the US, Kremnitzer (2012), discovered that actively managed funds receive an average 3 year return of 2.87% more than passively managed funds, however, a study by Carhart (1997) conducted along these lines of thought, deduced that actively managed investment funds have tended to under-perform their passively managed counterparts.


With respect to the Nigerian pension and investment situation where scholarly publications constantly bemoan the plight of pensioners, especially regarding shoddy and irregular payment of their pension entitlements, among other problems (Elumilade, 1999; Ogunbameru, 1999; & Idowu, 2006), fund performance has not been investigated along the line of how investment style and strategy impacts performance in the country. The varied results suggest that incongruities exist across the world pension space, as such it is pertinent to factor in the whole spectrum of investment strategy in other to evaluate the effect on fund performance since the pension reform of 2004 (Odiah & Okoye, 2012)


Furthermore, close analysis of fund performance literature both in Nigeria and outside Nigeria revealed that apart from the scanty studies (especially in Nigeria) on risk profile and regulatory influence effect on fund performance, there exist a plethora of anomalies on the effect of  investment strategies on fund performance. Studies did not clearly show the effect of risk profiling and investment style on the performance of funds. In addition disparate schools of thoughts, experts and fund managers have not conclusively reported on the best strategy that brings about superior fund performance. Thus, it is the aim of this research, apart from contributing to literatures on fund performance also seeks amongst other things, to determine the relationship between various investment strategies and fund performance in Nigeria.


  • Objective of the Study

The general objective of this study is to examine the effect of investment strategies and fund performance of selected pension fund administrators in Lagos State, Nigeria. The specific objectives are to:

  1. identify the effect of investment style on fund performance of PFAs;
  2. determine the effect asset allocation has on fund performance of PFAs;
  3. evaluate the effect risk profile has on fund performance of PFAs; and
  4. assess the effect of regulatory influence on fund performance of PFAs.


1.4       Research Questions

In order to address the objectives of the study, the following research questions were designed.

  1. What is the effect of investment style on fund performance of PFAs?
  2. What effect will asset allocation have on fund performance of PFAs?
  3. By what means does the risk profile affects PFAs fund performance?
  4. What effect does regulatory influence have on Fund performance of PFAs?


1.5       Hypotheses

The objectives of the study and its research interest are under consideration, therefore, the following null hypotheses were postulated at 5% level of significance:

Ho1:        Investment style has no significant effect on fund performance of PFAs.

Ho2:      Asset allocation has no significant effect on fund performance of PFAs.

Ho3:      Risk profile has no significant effect on fund performance of PFAs

Ho4:      Regulatory influence has no significant effect on fund performance of PFAs


1.6       Scope of the Study

This study focused on selected Pension Fund Administrators (PFAs) and the strategic investment that is employed in guaranteeing fund performance of the pension funds. With respect to coverage, this study only focused on the following three selected PFAs: ARM Pensions, Leadway Pensure, and PAL Pensions. The study was further limited itself to assessing professionals in the field under observation, among other employees, because of their wealth of knowledge in fund administration. With respect to geographical location, Lagos State of Nigeria has been chosen as the area of study, because most of the PFAs have their head offices situated in Lagos the commercial hub of the nation. The sample size was determined using the formula recommended by Yamane (1967). Primary data were used.


1.7       Significance of the Study

It is the hope of the researcher that at the end of the study, the result derived would uncover the benefits and shortcomings of investment strategies employed by PFAs, in order to secure a brighter future for Nigerian workers after their active service years. Furthermore, the management of the concerned PFAs would find this research work very relevant in articulating investment strategies. They would also be enlightened on how to properly invest the pension funds of employees of various public and private institutions so that they can obtain a better return on contributed funds. It shall also provide the management of these PFAs with a framework for investing pension funds. The existing active customers and retirees would find the work invaluable as they stand to benefit from the improved service delivery and returns that would be derived from improved fund performance and hence reap higher pensions payment. The stakeholders in pension administration would find in this research work, an important source of knowledge that is capable of assisting them in making qualitative investment decisions. Specifically, the government would benefit as future liabilities which used to be unfunded reduces, derived from the advantages of deploying better investment strategies by pension administrators. This research project would serve as a significant repository of knowledge for students. It would further help their appreciation of the topic and provide a bedrock for more studies on the topic and most importantly, it is envisaged that it should be useful to public policy analyst, particularly policy makers, scholars and the society at large.


1.8       Operationalization of Variables

The dependent variable in this study is fund performance indicated by Unit Price. The independent variable is investment Strategies; and the proxies for investment strategies are Investment Style, Asset allocation, Risk profile, and Regulatory influence.

Y = f (X)

Y = Dependent Variable

X = Independent Variable


Y = Fund Performance

X = Investment Strategies

X = (x1, x2, x3, x4)



x1= {Investment Styles (INS)}

x2 {Asset Allocation (ASA)}

x3 = Risk Profile (RIP)

x4 = Regulatory Influence (REI)




Functional Relationship

Y = f (x1) ………………………………………………………………Equation 1

Y = f (x2)………………………………………………………………………Equation   2

Y = f (x3)…………………………………………………………… …Equation 3

Y = f (x4)………………………………………………………………………Equation   4


1.9       Operational Definition of Terms

Investment: The action or process of investing money for profit.

Pensioner: A person who collects a pension, most commonly because of retirement from the workplace

Pension: a programme established purposefully for workers, it entails the monthly remittance of money into a dedicated account throughout the period a worker is in active service, and payments are made from this account after the retirement of the worker, in order to sustain him or her.

Asset Allocation: asset location is measured by strategic asset allocation,tactical asset allocation and integrated asset allocation

Fund: A sum of money or other incomes set aside for a defined investment purpose

Fund Performance: refers to the returns from an invested pension fund quantified by the unit price.

Risk Profile: Risk Profiling functions as an indicator with respect to what investors might anticipate in terms of fund’s volatility

Investment style: refers to diverse style characteristics of equities, bonds or financial derivatives within a given investment philosophy. It can be active or passive. It is the determined beliefs of the investor.

Investment manager: refers to a person or organization that makes portfolio investments on behalf of clients in accordance with predetermined investment objectives.

PFA: Acronym for Pension Fund Administrator. A PFA is a company that has been given licensed by the federal government to manage pension funds and pay pensioners their benefits in line with the Pension Reform Act

PENCOM: refers to the National Pension Commission which is the regulatory body that ensures effective administration, supervision and regulation of the Pension Schemes in Nigeria.

Regulatory Influence: these are restrictions and controls specified by the Pension commission that must not be violated.


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