Claudia Parsons of Reuters and Calpers Chief Investment Officer Joe Dear discuss the pension fund’s appetite for risk on CNBC, after a Reuters investigation into how Calpers is delving further into alternative investments despite suffering heavy losses.

More on Calpers:

• Former Calpers CIO says did right thing
• FACTBOX-What is California pension fund Calpers?
• Can Calpers keep its promises?

Thanks are due to the World Economic Forum for clearly  explaining the interlinked web of misery currently facing the world.  Make what you will of the details in the graphic below – and if you can, please do let us know! — but the overall impact really does spell it all out.

This Vonnegutesque cat’s cradle, incidently, comes from the forum’s new report, Global Risks 2009, released ahead of its annual meeting in Davos between January 28 and February 1. It shows an interlinked world facing a monumental series of interlinked risk, some of which  investors are having to confront for the first time.  Sheana Tambourgi, head of WEF’s global risk network, explains the report in this video:

Investors learned the wrong lesson from the dotcom bubble, and ended up blowing another. 

That’s the view put forward at the CFA Institute’s conference in Amsterdam by Ben Inker, head of asset allocation at GMO. He believes investors became so enamoured of diversification – which seemed to work like a charm for the large US university endowment schemes – that they ran headlong into risk asset classes and blew a giant risk bubble. 

Inker argues that because investors rushed into risk asset classes indiscriminately, they ended up paying for the privilege of taking risk.

“What you cannot do is say: ‘Because I’m diversified, I can take more risk.’ But after the internet bubble, diversification became the mantra,” he said. “Investors looked uncritically at the idea of having a diversified portfolio. That made the risk/return curve negatively sloping.” In effect, investors were paying more to take on risk. 

A small crumb of comfort for those diversified investors surveying the remnants of their portfolios, is that markets have fallen so far you are now once again being paid to take on risk. But is there anything they could have done to avoid this unpleasant sequence of events in the first place? 

Inker suggested they should have gone short risk. Unfortunately, as he conceded, it is not possible for the whole market to do this. 

Lesson learned?