Global emerging markets remain a favourite investment for many UK pension funds with 29 per cent of UK schemes now more likely to allocate to this alternative class due to global market volatility, according to Baring Asset Management.

Those pension funds that already invest in emerging market equities include Asia (90 per cent) and Eastern European and Latin America (76 per cent) in their portfolios, and 48 per cent invest in global emerging markets through a standalone mandate. Forty-three per cent invest as part of a global equity portfolio.

Maximising returns with minimal risk was cited as the most important investment priority for the coming year, and achieving cash plus returns was second, which Richard Graham, head of UK institutional business at Barings, said shows that schemes recognise emerging markets as leaders out of the recession. "Schemes have seen that there are few safe equity havens and would prefer more exposure to the growth parts of the world, and less to the volatile West. We are seeing significantly more interest from both schemes and their consultants," he said.

Meanwhile, J.P. Morgan Asset Management's latest European Equity Survey shows that, in comparison to the rest of Europe, the UK takes a higher level of risk when it comes to portfolio investments, with UK institutions allocating on average 56 per cent to equities, 31 per cent to fixed income and cash, and 14 per cent to alternatives.

Peter Ball, head of institutional business in UK, said: "It is clear that the volatility in equity markets over the last two years has not deterred UK institutional investors. However, UK institutions have, on average, a much larger allocation towards equities than other European countries and we are experiencing a shift of institutions increasing allocations to fixed income and alternatives. I expect UK institutions will become more in line with the rest of Europe from an asset allocation perspective in the medium to long term."

In comparison, the average European portfolio allocates just 29 per cent to equities, and 57 per cent to fixed income and cash. The remaining 13 per cent is allocated to alternative assets.

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