Plans by managers of the railway workers' pension fund to put more than £600m into hedge funds - the largest investment of its kind - have alarmed trade union chiefs.
Bob Crow, the leader of the RMT rail workers' union, said he was "concerned" about moves to put retirement money into instruments which are seen by critics as volatile and dangerous.
The new plans were outlined by Chris Hitchen, the chief investment officer at the Rail Pension Scheme (Railpen), in an interview with FT Fund Management.
"We are committed in principle [to investing in hedge funds]. We are suggesting an allocation of about 5% [of all Railpen assets]," said Mr Hitchen, who is poised to take up an influential position at the National Association of Pension Funds.
The decision by a historically conservative rail retirement fund to pour millions into an alternative investment of this kind is being interpreted as a major shift in attitudes towards hedge funds.
The BT Pension Scheme, which is managed by Hermes, has just announced plans to put £500m into similar kinds of investment. The reputation of hedge funds was badly tarnished by the collapse in September 1998 of Long-Term Capital Management (LTCM) in the US.
Other private firms such as J Sainsbury, Pearson and ICI are reported to be new converts and are allowing their pension fund managers to invest in hedge funds.
Mr Hitchen was in meetings yesterday and unable to talk about his decision, but RMT confirmed that the issue had been discussed by the pension fund trustees.
Mr Crow said despite his reservations, the union representatives would not oppose the decision.
"We are concerned... we have some reservations, but what do we know about the stock market?
"It is the job of the trustees to go for the maximum returns, and we take our advice from professional investment managers. We are not going to oppose it," the RMT general secretary added.
Hedge funds use sophisticated financial instruments to bet or "hedge" against falls or rises in currency or stock markets. They are seen increasingly as a way of offering much higher returns than traditional investments at a time when equities and bonds have failed to bring enormous value and led to companies finding holes in their pension funds.
But the financial world is still divided about how safe they are. Some hedge funds rely heavily on derivatives, which were described recently by the American investment guru, Warren Buffett, as "financial weapons of mass destruction".
