Several major global pension funds have reduced their exposure to US equities this year, saying valuations look stretched and that market dominance by AI‑focused technology companies has raised concentration risk. The trend was reported by Pension Policy International and discussed further by Portfolio.
Which funds and how much?
- Australian Retirement Trust, which manages about $260 billion, has trimmed its US equity positions this year relative to the MSCI World benchmark. Portfolio manager Jimmy Louca said the AI sector and US equity valuations have become overheated, prompting a need to diversify portfolios.
- Canada’s La Caisse, which manages roughly $388 billion, is also seeking diversification beyond mega‑technology stocks. Vincent Delisle, La Caisse’s chief investment officer, noted that they still hold their largest exposure in the US but see better risk‑return opportunities in other areas.
- The UK’s People's Pension, responsible for about £45 billion, reduced its US allocation within the global equity portfolio from 53 percent at the start of the year to 49 percent. That is significantly below the MSCI ACWI’s roughly 64 percent US weight. Dan Mikulskis, investment director at People's Pension, warned that concentration risk has been amplified by the spread of passive index‑tracking strategies.
- Danish ATP, which manages more than $100 billion, also signaled caution. ATP’s investment director Mikkel Svenstrup said current valuation levels imply very strong profit growth is already priced in for coming years.
Why is concentration a concern?
Analysis cited by the Financial Times points out that recent gains in the S&P 500 have been driven by a narrow group of technology and AI‑oriented companies such as Nvidia, Alphabet and Microsoft. As a result, concentration in the US equity market has reached historically high levels: more than one‑third of the S&P 500’s market value is now tied to large firms associated with the AI investment wave.
The combination of high valuations and pronounced concentration increases the risk of corrections and has led some institutions to underweight US equities versus global benchmark indices to improve diversification.
Survey evidence and near‑term plans
A Marsh survey found that the share of global institutional investors planning to reduce US equity exposure has doubled compared with last year. The survey covered 430 institutions managing more than $5,000 billion in total assets; about one‑third of those respondents expect to cut US exposure over the next 12 months.
Market implications
If a significant number of large investors continue to trim US allocations, that could place further pressure on highly concentrated technology names and increase interest in other regions and sectors. The growth of passive index strategies may also intensify concentration risks, an issue receiving attention from investors and regulators alike.
Disclaimer
This article does not constitute investment advice. An AI assistant participated in preparing the content; the final version was edited and verified by our journalist.
Tags: artificial intelligence, equity markets, pension funds, diversification, US equities, institutional investors
