Mr Madoff is the former chairman of the Nasdaq stock exchange
Hampshire County Council's pension fund stands to lose £7.1m tied up in an alleged $50bn fraud for which US trader Bernard Madoff is being investigated.
The council said the sum represents just 0.3% of its pension fund's total assets of £2.4bn and there was no risk to any contributors.
US authorities have ordered the liquidation of Mr Madoff brokerage firm, after the case was discovered.
The council said its fund value had fallen from £3.1bn in October 2007.
The £700m (22.5%) drop was due to the global financial crisis and should set the context for any losses with the Madoff case, a spokesman said.
Councillor Ken Thornber, leader of the county council, added: "The actual position remains to be seen and Hampshire's exposure is extremely small relative to other investors.
"Nevertheless the Hampshire Pension Fund is very concerned that a small proportion of its investments may be at risk because of this alleged fraud."
The Hampshire Pension Fund originally allocated up to 10% of its fund to alternative investments such as Madoff.
Banks and financial institutions across the world had investments with Mr Madoff.
He was arrested on Thursday and has been charged with fraud in what is being described as one of the biggest-ever such cases.
Santander, Spain's largest bank which owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley, stands to lose $3.1bn while HSBC could lose $1bn.