Volatile Gilt yields have seen the Universities Superannuation Scheme’s deficit increase to £11.5bn (€13.6bn) at the end of the most recent financial year, only to fall by £3.6bn in the following three months, according to its latest funding statement.

The UK’s second-largest pension scheme said its funding ratio remained stable at 77% in the 12 months to March, but that the increase in liabilities – rising by nearly 15% – outpaced asset growth.

The statement stressed that the £37.9bn scheme’s investments had performed well since the most recent triennial valuation in 2011, at which point actuaries measured a £2.9bn deficit.

The two years since saw assets increase by £6.2bn to the end of March, while liabilities rose nearly £15bn over the same period to £50.1bn.

The scheme noted that the yield volatility had continued after the March date of the valuation, and that liabilities had fallen to £45.8bn by the end of June, although assets under management also declined by £700m from a peak of £38.6bn.

It said: “There has been a high level of volatility in the scheme’s funding ratio in the months since March.

“As at the end of June, the funding ratio had improved to 83%, which reflected a funding deficit of £7.9bn, with considerable fluctuation in the intervening three-month period.”

Addressing its members, the scheme’s funding statement added: “USS has always taken a long-term view in its funding approach to the scheme, supported by the unique and enduring nature of many of the scheme’s sponsoring employers.

“That said, these are undoubtedly challenging times, and the trustee board is working with the employers to review their ongoing flexibility to meet USS commitments in light of wider financial, economic and sectoral changes that might impact them.”

It said the review would “inform” the trustee board’s future discussion with sponsors over the long-term funding proposals, set to be updated once the next triennial valuation in March 2014 has been finalised.

According to the fund’s annual report, also released today, its investments returned £1bn over the course of the last year, while the assets’ £3.5bn increase in market value accounted for the remainder of the £4.5bn increase in investments.

Over the course of the last year, the fund has noticeably increased its fixed income holdings, rising by 8 percentage points to 24% of total assets at the end of March.

Its exposure to alternative investments and property remained broadly unchanged, while its overseas equity exposure fell by 4 percentage points to 2011 levels.

However, the fund has noticeably de-emphasised domestic equity holdings despite several of its largest listed investments including UK-based companies.

Since March 2011, its exposure to UK equities fell from 22% of assets to just 16%, despite a 1.2% stake in HSBC and a 0.79% stake in Vodafone.