The Board's annual report for 2011 shows that six per cent of the "return-seeking pool", worth just under £1 billion, has been invested in hedge funds managed by BlackRock, Bridgewater, and Winton. Bridgewater Associates, the world's largest hedge-fund company by assets under management, was founded by Ray Dalio, whom Forbes magazine names asthe 88th richest person in the world, with a net worth of $10 billion.
It delivered returns of about 20 per cent last year. Winton Capital was founded by the British businessman David Harding, the 92nd richest man in Britain, according to The Sunday Times, with a personal fortune of £800 million.
The Pensions Board report states that investing in Global Tactical Asset Allocation funds (the funds to be managed by the three firms) has "become a standard investment tool for UK pension funds in recent years".
Such funds allow managers to look across a broad range of asset classes to find value and, although volatile (hence the allocation of just six per cent of the fund), are recommended to investors seeking to diversify their portfolio.
The investment officer at the Pension Board, Pierre Jameson, told Reuters last week that the funds had an "enviable track record", and that the Board felt "quite fortunate to be able to invest in them".
The investment generated a return of 5.9 per cent in 2011, compared with a loss of 5.2 per cent in UK equities, and 2.4 per cent overall.
It has prompted questions, however, about the ethics of the investment.
Mr Jameson told The Guardian this week that the Board had rejected several hedge funds because of ethical concerns concerning short-selling (whereby an investor borrows an asset from another investor, and then sells it in the expectation that the price will fall), market manipulation, and commodity speculation.
He said "clearly there were concerns" about the high pay of hedge-fund bosses, but that "we feel that if we want to acheive superior returns we have to pay for it. . .We felt it [excessive pay] was a fact of life."
Because hedge funds are private companies, investing bodies do not have a say in their remuneration practices.
A spokesman for the Church of England's Ethical Investment Advisory Group (EIAG) said, however, that it would "encourage wealthy individuals in the hedge-fund world to be generous with the wealth with which they have been blessed".
The Pensions Board adopted the EIAG's ethical guidelines on investment in hedge funds in 2011.
A spokesman for Church House said on Tuesday that the full guidelines were not in the public domain, but that they covered issues including short-selling, trading in basic commodities such as food and oil, trading around mergers and acquisitions, and trading in the assets of companies in financial distress.
The EIAG spokesman said that, to his knowledge, they were the first in the investment world to have produced such a policy.
The "general princples" were "to avoid profiting from the misfortune of others, particuarly the poor and vulnerable".
When asked about the policy on trading in food, he said that investing bodies should "avoid investment activities that, when widely practised, may cause the price of food to rise or prices received by farmers to become damagingly volatile".
In 2010, the United Nations special rapporteur on the right to food said that financial speculation on food prices explained "a significant portion of the increases in price and volatility of essential food commodities" during the global food crisis of 2007-08.