ACCRA BUSINESS SCHOOL

STRATEGIC FINANCE ISSUES

STUDENT NAME: BENNETT ATUOBI AMOAFO

STUDENT NUMBER: ABS0422071

COURSE CODE: MBA 556

WORD COUNT: 1384

1
Executive Summary

The main aim of this report is to provide an assessment of the risk exposures and performance of
pension funds in the Ghanaian financial sector. It does this by using the financial statements of
six-selected pension funds from the total sample of over 150 in the Ghanaian economy for the
period (2017-2021), employing the risk and performance impact evaluation analysis for the
assessment of performance and key risk measures like investment risk or market risk (corporate
bond, money market, Government of Ghana bonds, investment in schemes and equity) and other
forms of risk measures like credit risk, liquidity risk. It uses descriptive statistics and ratio
analysis and presents a report to the Board of Trustees on the contribution of the pension funds,
based on their risk and performance, to financial and economic development of the country.
Financial statements of six pension funds were collected to be able to compute the ratios under
the impact evaluation approach. Results show that, for the pension funds to be able to contribute
effectively to economic development, training on their risk portfolios must be undertaken so as to
enlighten the team at NPRC about the benefits that comes with investments in the funds. Until
that is done, the impact of the risk exposures on performance that translate into economic
development will remain relatively low.

2
Introduction

Pension supervisory authorities around the world have been following other financial sectors and
moving towards a risk-based approach to pension supervision. This can be recognized as a
structured process aimed at identifying the most critical risks that face each pension fund and,
through a focused review by the supervisor, assessing the pension fund’s management of those
risks and the pension fund’s financial vulnerability to potential adverse experience. A key part of
a risk-based approach to pension supervision involves the supervisory authority transitioning
from checking detailed compliance requirements for the operation of pension funds to reviewing
the internal decision-making processes and bodies of these funds. One of the main objectives of
risk-based supervision is to ensure sound risk management at the institutional level taking into
account both the quality of risk management and the accuracy of the risk assessment.

SCHEME NAME
No
1 ABSA BANK GHANA STAFF OCCUPATIONAL PENSION SCHEME
2 ABSA BANK GHANA STAFF PROVIDENT PENSION SCHEME
3 AGSL EMPLOYEE PROVIDENT FUND
4 ANCHOR TIER 2 MASTER TRUST
5 ASANKO GOLD PENSION SCHEME
6 ASANKO GOLD TIER 3 PROVIDENT FUND SCHEME

Measuring Pension Fund Risk Exposures and Performance

An important point to keep in mind is that all performance measures are relative measures that
have to be compared against some kind of benchmark According to Ambuchtsheer (1998) a good
pension fund risk management tool must be able to deal with the conceptualization and
measurement of asset mix policy risk.

The main risks within the pension system, as identified and reported in this research, relate to
investment risk or market risk (corporate bond, money market, Government of Ghana bonds,
investment in schemes and equity) and other forms of risk measures like credit risk, funding and
solvency risk, liquidity risk, asset-liability mismatch risk, operational risk.

3
Ratio Analysis under Risk Exposures and Performance of Pension Funds
Table 1: Ratio Analysis: Risk Measures

Investment risks measures

RATIO FORMULA

corporate bonds to asset corporate bonds

Total asset
ratio
Counterparty default risk/credit risk
RATIO FORMULA

Receivable to AUM receivables

ratio AUM

Funding and solvency risk

RATIO FORMULA

contribution to benefit Contribution

Benefit
ratio

Liquidity risk

RATIO FORMULA

income to contribution ( Intcome )

ratio Contribution

Asset-liability mismatch risks

RATIO FORMULA

Asset to Cumulative Asset

Contribution Ratio Cummulative contribution

Operational risk

RATIO FORMULA

Expense to Expense
contributions ratio Contributions

4
Table 1.1 Performance Measures
RATIO FORMULA

Net Interest Margin ( Interest Income−Interest Expense)

Interest Earning Assets
Net Profit Margin Profit before Tax
Total Income
Return on Equity Profit before Tax
Shareholder s' Equity
Return on Assets Profit before Tax
Total Assets
Return on Capital Profit before Tax
Employed Capital Employed

Table 2: Individual Pension Funds Risk Assessment

CORPOR
ATE ASSET TO
BONDS INCOME CUMMULAT contribu
TO RECEIVA EXPENSE to TO IVE tion to
ASSETS BLES TO CONTRIBU CONTRIBU CONTRIBUT benefit
Year ratio AUM ratio TION ratio TION ratio IONS ratio ratio
2021 0.0589 0.0410 0.3205 2.0351 14.6602 11.1692
2020 0.0470 0.0457 1.7818 0.6600 11.3890 14.5243
2019 0.0466 0.0595 0.2288 1.7557 11.5749 12.8467
2018 0.0581 0.0591 0.1069 0.6939 4.8820 13.6855
2017 0.0681 1.0718 0.1096 0.7579 4.8483 13.2661
Avera
ge 0.0557 0.2554 0.5095 1.0485 9.4709 13.4758

5
 Risk Assessment for the industry

contribution to benefit ratio 5.2597

ASSET TO CUMMULATIVE CONTRIBUTIONS ratio 9.4709

INCOME TO CONTRIBUTION ratio 1.0485

EXPENSE to CONTRIBUTION ratio 0.5095

RECEIVABLES TO AUM ratio 0.2554

CORPORATE BONDS TO ASSETS ratio 0.0557

0.0000 2.0000 4.0000 6.0000 8.0000 10.0000

Industry Analysis

This section provides the results from the computation of the performance of pension funds from

the industry perspective

Table 3: Performance Over 2017-2021

ROA
2017 0.039519
2018 0.033947
2019 0.042372
2020 0.040192
2021 0

6
Figure 1: Performance Ratings of Selected Pension Funds

ROA
0.7
0.583
0.6

0.5

0.4

0.3

0.2

0.1 0.039519 0.033947 0.042372 0.040192

0
2015.5 2016 2016.5 2017 2017.5 2018 2018.5 2019 2019.5 2020 2020.5

ROA

Table 2 shows the descriptive statistics of the six pension funds selected from the sample. The
descriptive statistics cover the mean, standard deviation, the minimum and maximum values
achieved by the variables (risk exposures and performance).

Table 4: Risk Exposures- Industry Level

CORPOR
ATE ASSET TO
BONDS EXPENSE INCOME CUMMULA contribu
TO RECEIVA to TO TIVE tion to
ASSETS BLES TO CONTRIBU CONTRIBU CONTRIBUT benefit
ratio AUM ratio TION ratio TION ratio IONS ratio ratio
13.1612
Mean 0.055735 0.255418 0.509504 1.15852 9.470869 7
Standard 0.45861
Error 0.003314 0.166671 0.261741 0.242354 1.606866 8
13.3709
Median 0.056899 0.059271 0.274643 0.903187 10.42992 7
Standard 1.12337
Deviation 0.008117 0.408259 0.641132 0.593644 3.936003 9
Sample 1.26198
Variance 6.59E-05 0.166675 0.41105 0.352413 15.49212 1
2.23081
Kurtosis -0.3455 5.119463 4.850872 -1.44829 -1.41333 5

7
 -
Skewness 0.289004 2.248217 2.164359 0.855713 -0.1933 1.10632
Range 0.021523 1.030791 1.674888 1.375112 9.811888 3.3551
Minimu 11.1691
m 0.04661 0.041014 0.106888 0.66 4.848311 8
Maximu 14.5242
m 0.068133 1.071806 1.781776 2.035112 14.6602 8
78.9676
Sum 0.334409 1.532507 3.057023 6.951123 56.82522 3
Count 6 6 6 6 6 6
Confiden
ce
Level(95. 1.17891
0%) 0.008518 0.428441 0.672826 0.622991 4.130582 4

Table 5: Performance- Industry Level

  ROA

Mean 0.019222
Standard Error 0.002195
Median 0.019067
Mode 0
Standard Deviation 0.028624
Sample Variance 0.000819
Kurtosis 15.98758
Skewness -1.65718
Range 0.312713
Minimum -0.17105
Maximum 0.141665
Sum 3.267753
Count 170

8
Figure 1b: 2021 Scheme ranking by corporate bonds to assets

Top 10 Schemes
0.87
ESA MASTER TRUST SCHEME 0.66
0.17
CPC TIER 2 PENSION SCHEME 0.16
0.15
NEWMONT GHANA EMPOYEES PROVIDENT 0.14
0.13
PWC STAFF PROVIDENT PENSION SCHEME 0.13
0.13
MINERALS COMMISSION TIER 3 PROVIDENT 0.13
FUND
0.00 0.20 0.40 0.60 0.80 1.00

Bottom 10 Schemes
0.008
KIMPTON MASTER PROVIDENT SCHEME 0.008
0.006
QFTL OCCUPATIONAL PENSIONS SCHEME 0.004
0.003
UT GROUP OCCUPATIONAL PENSION SCHEME 0.003
0.003
SECURE PENSIONS PROVIDENT FUND MASTER 0.003
TRUST SCHEME
0.002
HEDGE MASTER TRUST OCCUPATIONAL 0.002
PENSION SCHEME
0.000 0.005 0.010

In Figure 1b, GTMO/TWU Occupation was ranked first, among the Top 10 schemes list, in
terms of corporate bond to assets while Hedge Master Trust was ranked 10 th from the bottom 10
schemes. Thus, GTMO/TWU Occupation are the most active risk takers in corporate bonds.
Although Hedge Master Trust appeared last in the ranking, they are the least exposed to risk.

9
Table 6: Linear regression
roa Coef. St.Err. t-value p-value [95% Conf Interval] Sig

Corporate bonds -.043 0.0186 -1.86 0.000 -.124 .049 ***

to as~s
Equity to assets .037 .074 0.50 .617 -.109 .183
Moneymarket to -.025 .052 -0.49 .625 -.128 .077
assets
Cisto assets -.066 .073 -0.90 .367 -.209 .077
gogtoassets -.05 .039 -1.26 .208 -.128 .028
Receivables to .003 .013 0.21 .837 -.023 .028
aum
Expense .011 .028 0.40 .691 -.043 .065
contribution
Income -.001 .002 -0.52 .607 -.006 .004
contribution
Income expense 0 0 0.39 .698 0 0
Cash expense -.002 .002 -1.13 .258 -.006 .002
Investment .0645 0.0186 2.63 0.00 -.088 .17 ***
averagea~t
Asset 0 .001 -0.07 .944 -.001 .001
cummulativeco~s
Constant .056 .035 1.61 .109 -.013 .125

Mean dependent var 0.020 SD dependent var 0.028

R-squared 0.027 Number of obs 185
F-test 0.405 Prob > F 0.960
Akaike crit. (AIC) -779.252 Bayesian crit. (BIC) -737.387
*** p<.01, ** p<.05, * p<.1

Over the past two decades, the financial world has evolved from [a] return driven to a genuine
risk management industry. The term risk management certainly is not confined to what is best
denoted with risk control: Measuring risks, setting limits and ensuring adherence to these limits.
This is necessarily part of the whole process of risk-return optimization. Risk management. Also
compromises the decision making process of considering risk-return trade-offs and optimising
stakeholders’ targets.

The results indicate that the risk associated with corporate bonds reduces the performance of
pension funds while other risk exposures had no significant impact on the performance of
pension funds.

10
Conclusion

In this regard, regulators of pension funds have a crucial role to play in supporting the
Government to achieve the objectives of National Pensions Regulatory Authority (NPRA) to
speed up plans to deploy a long standing proposed Risk-Based Supervision (RBS) facility which
will aid the Authority to undertake its mandate effectively. The results indicate that the risk
associated with corporate bonds reduces the performance of pension funds while other risk
exposures had no significant impact on the performance of pension funds.
As the national strategy focuses on addressing concerns of Ghanaian workers, major reforms of
the Pension System in Ghana should be enforced to foster a conducive investment environment
for pension funds.

11
References
Retirement Paradigm. R. Clark, L. and Olivia S. Mitchell. Oxford, Oxford University Press.

Balzer, L. A. (1994). "Measuring Investing Risk: A Review." The Journal of Investing Fall 1994 (Number
10002): 12.

Bauer, R., Hoevenaars, Roy and Steenkamp, Tom (2006). Asset Liability Management. Oxford handbook
of pensions and retirement income. G. L. Clark, A. H. Munnell and M. Orszag. Oxford, Oxford
University Press: 417-440.

Bernstein, P. (1996). Against the gods: the remarkable story of risk. New York ; Chichester, Wiley.

Bernstein, P. L. (1999). Capital ideas: the improbable origins of modern Wall Street. New York ; London,
Free Press.

Blake, D. (2003). Pension schemes and pension funds in the United Kingdom. Oxford, Oxford University
Press.

12