Hedge funds had a poor year in 2011, but this did not deter Britain’s cautious pension fund sector from continuing to ramp up its investment in this adventurous asset class.

The average share of U.K. defined benefit pension fund assets invested in hedge funds jumped from 2.6 percent to 4.1 percent last year, according to the recently published annual survey by the National Association of Pension Funds (NAPF). Since 2009 it has more than doubled from only 1.8 percent. Last year close to one third of pension funds had money in hedge funds compared with only one quarter two years before.

This may seem to sit oddly with pension funds’ trend towards “derisking” — trying to reduce the likelihood that they will not be able to pay future liabilities through a range of strategies that include cautious investment. Derisking has prompted them to cut equity allocations and increase their weighting in bonds to lessen the risk of large falls in their overall portfolio. In 2006, an average of 60 percent of their money was in equities, with 28 percent in fixed income. By 2011 the equity weighting was only 42 percent, with bonds up to 33 percent.....

Read More: pension funds · hedge funds · U.K.