EUROPE – Some 13% of continental European and Irish pension funds invest in hedge funds, almost double the number in the UK, according to Mercer Investment Consulting.

“In the UK, 7% of funds invest in hedge funds, allocating 6.9% of their assets on average,” Mercer said. Larger funds are more likely to invest in hedge funds, with around one in ten doing so.

“In Continental Europe and Ireland, allocations are generally higher, with 13% of funds on average investing in this asset class.”

Mercer, which surveyed more than 570 European pension funds with €364bn under management, said: “The proportion of pension funds investing in hedge funds could rise by 5 percentage points over the next year.”

It found that the biggest potential growth areas are liability-driven investment strategies and interest rate hedging strategies. Some 10% of UK funds and up to 40% in the Netherlands and Ireland were considering these approaches respectively.

“European pension funds are managing the risk in their portfolios by diversifying their investments and placing more money in alternative assets,” it said.

“As well as reducing risk, pension funds are putting greater emphasis on active manager strategies (‘alpha’ strategies) to enhance returns.”

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