For the past several years, low interest rates and a volatile and often-depressed equities market confounded pension plan administrators when it came to the performance of their plans' assets. Naturally, they began to seek out alternatives, and one of the most popular was hedge funds.

According to Greenwich Associates, a Connecticut-based financial services consulting firm, U.S. corporate defined benefit plans had more than $15 billion sunk into hedge funds as of last year, with billions more expected to follow. "In terms of what weathered the bear market, hedge funds are pretty much it," says Meredith Jones, director of market research at Nevada-based financial software provider Strategic Financial Solutions LLC.

Even so, investing in hedge funds poses its own risks for plan administrators, who haven't forgotten the 1998 meltdown of widely touted Long-Term Capital Management: Reliable information on these funds, which remain largely unregulated and secretive, is scarce–and surprises are more than just possible.