The average UK pension fund returned 11.7% over the course of 2014, with real estate and government bonds performance offsetting weak UK equities.

The figures, published in this year’s UBS Global Asset Management Pension Fund Indicator report, also showed a slight change in average asset allocation, with bonds now accounting for 38% of portfolios, up from 35% and closing in on previous highs.

UK equity allocations dropped to 16% from 18%, while allocations to cash, real estate and alternatives remained relatively static at 3%, 7% and 9%.

Non-UK equities fell by 1 percentage point to 27%.

Within alternative investments, however, there was a shift to private equity within public sector pension schemes, where it now accounts for the majority of the allocation.

Within local government pension schemes’ (LGPS) 8.3% average allocation to alternatives, private equity accounted for 55% of portfolios, up from 40% in 2013.

Among both private sector and LGPS schemes, infrastructure investment also increased, accounting for 15.6% of alternatives allocations in the former and 11.5% in the latter, both up by approximately 4 percentage points.

This suggest that, while pension funds are increasing allocations to private equity and infrastructure, it is at the expense of other alternative asset classes over traditional investments, with overall alternative holdings remaining relatively stagnant.

Over 2014, UK Gilts were the best-preforming asset class, returning 26.1%, while the worst returns came in cash at 0.3%.

UK corporate bonds returns 12.2%, index-linked bonds and real estate both 19%.

UK equities were the second-worst performer with 1.2%, while overseas equities returned 12.3%.

Bond allocations have been rising since the global financial turmoil in 2007, which saw a jump from a 24% allocation to 30%, mainly via Gilts.

Bond allocations flirted around the mid-30 mark for some years before rising steadily to 38% in 2014 – split 18% 14% and 6% in Gilts, index-linked Gilts and overseas bonds.

UBS GAM said the growing bond allocation, from as low as 10% in 1990, could be down to pension funds’ increasing maturity, with bonds being used to match pensioner payments, or accounting standards forcing private sector schemes to match corporate bond yields for discount rates.

“None of these developments actually requires pension funds to invest in bonds,” it said. ”However, they act as powerful incentives to do so.

“Growing demand for long-maturity bonds in the UK has been sufficient to create a relatively flat yield curve.

“It seems likely these pressures will persist as asset allocation moves towards a better match to the maturity structure of pension funds.”