Railpen, one of the largest pension funds in Britain, with £18 billion ($35.3 billion) in assets under management is planning to move at least £540 million ($1 billion) into hedge funds this year.

Chris Hitchen, Railpen chief executive, said they are planning on increasing their exposure from 5% to 8%, by having £1.4 billion ($2.7 billion) invested in hedge funds by December.

"We have been divesting our equity portfolio to buy other asset classes, such as private equity, property, hedge funds and infrastructure," Mr Hitchen said. "We went into infrastructure assets last year, but they're somewhat overheated, so we're trying to make sure we don't put all our money in at the same time."

According to the Times Online, a recent NAPF survey indicated that 11% of pension funds had invested in hedge funds by the end of 2006, up from 8% the previous year. There were also rises in the amount of money that pension funds invested in property, private equity and venture capital as part of a wider move out of equities in 2006.

He said that despite concerns about the stability of the hedge fund industry, the funds could provide returns that were more stable than equities.