Paul Myners, who in 2001 was commissioned to write a report on pensions for the UK government, referred to a recent survey of FTSE 100 companies which found that 92 had defined benefit pension schemes, many going into deficit.
He said the equity market crash in 2001 and 2002 still left many pension fund schemes vulnerable.
Currently around three per cent of the UK pension funds’ assets are allocated to hedge funds or fund of hedge funds, which is significantly lower than in the United States and continental Europe.
Speaking at the Hedge 2006 conference in London last week Mr Myners said: ‘Hedge funds can help pension funds to match their liabilities because they can achieve the absolute return that pension schemes need.
In general terms the case for an allocation to a fund of hedge fund centres around its ability to enhance asset return at an acceptably low cost in volatility or, conversely, to reduce volatility with little or no effect on return.