"The Concentration Itself Is the Risk": Inside Public Pensions' AI Exposure
By Google News Personal Finance ·
Public pension funds may have as much as $700 billion invested in AI-related companies, and some funds have close to a fifth of their assets tied to the AI trade. In this episode, Anthony Randazzo, Executive Director of Equable Institute, explains why the concentration itself is the risk.
Anthony, it's so great to see you. Thanks for popping by the program this morning.
No, thanks for having me on. Happy to talk about this.
Yeah, this is a very important topic. It's something that you and the team at Equable have done a lot of research on when it comes to public pensions. You know, you can't go anywhere in your social feed or on TV anywhere and not hear about AI.
Uh but but you and the team, artificial intelligence for those who may not be following the news, but in all seriousness, you've taken a look at this from the public pension fund perspective. What's the top line here? What what's the top line, the top byline here when the headline when it comes to this topic?
Headline is that there's somewhere between $570 to $700 billion dollars of public pension fund holdings that are in AI-related companies. And that range, that sort of 5, 6, 700 billion estimate, um we think is probably pretty conservative. I could sort of walk through why.
But, you know, something to think about is that you have these very large pension funds like Calpers and Calsters. and you also have these modest, and they have hundreds of billions in assets under management. And then you have these modest pension funds that maybe have 10, 50, 100 billion dollars that they're they're managing.
They're all trying to figure out how they can generate the best returns they can for the public employees that they serve. And they do that through a variety of ways of investing, and we noticed over the last few years that the share of all their investments that's invested and exposed to AI companies has been growing pretty steadily.
We kind of wanted to understand what that exposure was and what we found is actually really hard to tease out exactly what it is.
So, to just to follow up on that. I mean, this AI has been, I guess, a boon for Wall Street and financial Services firms, right? Because they can re reduce, reduce people or or change their workforce in a way to maximize earnings. You know, I don't I mean, there's it's a lot more complicated than that, but I'm with a broad brush. And obviously pension funds, their job is to they have liabilities.
They have to pay retirement benefits. So, is it a concentration in firms like the Nvidia of the world, the Google's, the all these of the world? Is that is that where the challenge may lie for these public pension funds is that it creates that concentration creates risk?
So the, it's the risk is a high degree of concentration in one trade effectively, right? So there and that that's the thing that we want to flag and that we think that every individual pension fund should be taking a close look at. And so I break down this in some like percentage numbers.
So you've got a big fund like Calpers, hundreds of billions of dollars of assets under management. and of course, they're going to own a lot of shares of Nvidia and Apple and meta and Alphabet. Um they're also going to own shares of lots of different publicly traded companies.
They then they have private investments and their private equity investments are going to be um they're among the better like transparent pension funds in the country, but they still never list…
Originally published by Google News Personal Finance
