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.
Jeffrey Snyder, Broadcast Retirement Network
Anthony, it’s so great to see you. Thanks for popping by the program this morning.
Anthony Randazzo, Equable Institute
No, thanks for having me on. Happy to talk about this.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, this is a very important topic. It’s something that you and the team at Equitable 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.
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’s the top line, the top byline here, the headline when it comes to this topic?
Anthony Randazzo, Equable Institute
Headline is that there’s somewhere between $570 to $700 billion of public pension fund holdings that are in AI-related companies. And that range, that sort of $500, $600, $700 billion estimates, 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 CalSTRS. 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 that 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.
Jeffrey Snyder, Broadcast Retirement Network
So just to follow up on that, I mean, AI has been, I guess, a boom for Wall Street and financial services firms, right? Because they can reduce people or change their workforce in a way to maximize earnings. I mean, it’s a lot more complicated than that, but I’m sort of playing with a broad brush.
And obviously, pension funds, their job is they have liabilities. They have to pay retirement benefits. So is it a concentration in firms like the NVIDIAs of the world, the Googles, all these anthropological world?
Is that where the challenge may lie for these public pension funds is that it creates, that concentration creates risk?
Anthony Randazzo, Equable Institute
So the risk is a high degree of concentration in one trade effectively, right? So that’s the that we want to flag and that we think that every individual pension fund should be taking a close look at. And so to break down this in some percentage numbers.
So you’ve got a big fund like Halpers, 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. They’re also going to own shares of lots of different publicly traded companies.
Then they have private investments and their private equity investments are going to be, they’re among the better transparent pension funds in the country, but they still never list. Here’s all the privately held specific companies. It’s just what pension private equity funds are invested in.
And you can say to a big fund like that, okay, if there’s a bubble that bursts, if there’s any, but whatever that looks like, right? Plenty of debate. I’m sure you’ve had people on your show talk about if there is, if there’s not, what it could even look like.
But let’s just assume there is something negative. A big fund like that is going to be able to absorb and manage those concerns. It’s in terms of percentage of their assets, it’s maybe 10, 15% of all their money.
Then you’ve got the Colorado public employees system, right? Still tens of billions of dollars under management. But if you look at their shares of NVIDIA and Apple, the Magnificent Seven, plus some chip designers, hyperscalers sort of take a broadish basket of AI companies.
That is, we’ve calculated, could be as much as 19% of their assets. And that’s just their public equity holdings. They also have a significant allocation to private equity.
And so the actual share of that Colorado retirement systems assets to the AI trade, that if there is one sweeping event that’s negative, could be very detrimental to their assets. And so the thing that we are trying to point out is not that this is inherently good or inherently bad, but that for some funds, the concentration itself is the risk.
Jeffrey Snyder, Broadcast Retirement Network
So most public pension funds, as most retirement plans have fiduciaries or people that sit on a board and review things like this, I would think, is, has this, based on your research, obviously you’ve teased this out from the, there must be hundreds of public pension funds, some big, some small in the United States. Have you gotten a sense from looking at board meetings and board minutes, which typically are public, that this is something that people are looking at, board members, people that have a responsibility to vote on behalf of the, those that are getting benefits? Sure.
Anthony Randazzo, Equable Institute
Unfortunately, not until the last nine months, really, in any sort of substantive way. Sure. There is mentions of AI in board meetings.
Yeah. But honestly, pre-COVID, right? It’s not artificial intelligence, like investments are like hyper new, right?
You can find little notes here and there. The idea that there is a substantive concentration in AI investments that the fiduciary should be paying close attention to, we did not identify in any substantive pattern that that was really something people started talking to until the year 2026. The first pension fund to really get out in front of this in a public way is the Los Angeles County’s Employees Retirement System, and they call themselves LACERA.
LACERA, their fiduciaries, their board members asked, and their investment staff asked some consultants to take a look at what their exposure was to AI investments. They came up with a range of somewhere between 18% and 19% of their assets are exposed to AI. They made this public, and they talked about it, and they published this report, very responsible.
That’s exactly the kind of thing that every public pension plan should be doing. We have not identified a big pattern of discussion around this up until this year. One of the leading reasons that it actually is coming up is not, oh, we may be exposed to AI, but it’s a data center debate, right?
You have in, say, New York, the governor, Hochul, coming out with a very negative take on data centers, lots of discussion around should there be a data center pause, and then there’s a question of should the state’s pension funds who are invested in some of the data centers, some of the hyperscalers, some of the companies who a pause could negatively affect, should their investments follow this political position?
A substantive part of the Wisconsin gubernatorial election was the positions that the candidates were taking on data centers. It is a big deal at the local level. Governor-elect Crowley has taken a position as of the last couple of weeks that they should take a data center pause.
Well, there’s a political question there of how the pension fund, the Wisconsin State Pension Investment Board, how they should be perceiving their investments in now is what becomes this political debate. That is where we’ve actually seen the conversation emerging, and it’s a really important fiduciary question because there may be very legitimate political reasons to pursue data center pauses. In our organization, we’re completely neutral on the subject matter.
It’s not what we exist to take a position on. What we think is important is that there’s a political way that that’s discussed, and then there’s a fiduciary way, like fiduciary management of pension funds is discussed, and those things may not actually wind up coming to the same conclusion. It may actually be fiduciarily appropriate for a state pension fund to stay invested in companies that are pursuing data centers, even while the state views it as a political problem.
That is where we’ve seen a lot of the conversations. It’s less, is there a big AI bubble that we should be concerned about concentrated risk? We think that that latter part should also be part of the discussion.
There’s a couple of pension funds that have announced that they’re going to do something similar to what Lacera has done. We would love to see every pension fund following. What is our concentrated risk?
Jeffrey Snyder, Broadcast Retirement Network
If I’m a beneficiary or a participant or a member of one of these funds, I would want to know. These funds issue reports every quarter. They hire, as you said, they hire consultants, of which back in my old life, I was one of those people.
I no longer do that, but they go there and look under the hood. If I’m a member, though, I would want to know where things are invested and what the perspectives are. I would assume as someone who’s running a state pension fund or a local pension fund, I want to inform my membership about that.
It’s a public pension fund, so wouldn’t you want to be transparent?
Anthony Randazzo, Equable Institute
Yeah. There’s a handful of schools of thought on transparency that exist. There are some pension funds that won’t even say what private equity funds they’re invested in.
They’ve taken this position that it’s somehow some secret sauce for how they’re investing. To be perfectly blunt, we think that’s absurd because you can go to any private database and find this information anyway. The idea that they wouldn’t put in a public report doesn’t give them any competitive advantage.
There are these big moments like the FTX crisis a few years ago, where all of a sudden, public employees across the country are finding out their pension fund was invested in FTX, and they had no idea. It’s because there is almost no transparency around private investments. Pension funds will issue a quarterly report, sometimes a monthly report.
This is, here’s the PE funds that we’ve allocated money to. Here’s the private credit funds we’ve given money to, but they never say what their portfolio companies are. Then there are also some public pension funds that even on public equities, it’s very difficult to know what they own, and it’s because they use external asset managers.
Perfectly fine, but those external asset managers report their holdings on their own 13Fs. Those pension funds are not on a quarterly basis saying, here’s all the public stock that we hold. Maybe they will report it once in an annual report that’s issued nine months after the fiscal year end date.
Even at the public level for some pension funds, there is not the kind of commitment to transparency that what I think you’re very reasonable, wouldn’t people want to know? Wouldn’t this be perfectly fine? This is in the public trust.
That’s not what we see everywhere.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. I guess I don’t really get that because I’m not in their shoes. There must be rationale or reason.
Maybe there isn’t. Are there changes? Usually state legislatures, at least for state programs, I would imagine there’s county executives and county councils, et cetera, that have some level of purview.
Is there an opportunity here? Again, our show is not really political, but are there opportunities here to create some more rules if you’re a state legislator and you’re starting your session in January around this? Isn’t that something that they should be looking at as guardians of the public till?
Anthony Randazzo, Equable Institute
Yeah. The short answer is yes. The longer answer is that it needs to be handled with care.
The kinds of rules that we think are appropriate from a good governance perspective of pension funds are not what you can and cannot invest in. If legislatures were to say, you can’t invest in X, and there are some states that do this around certain narrow topics. Some of it’s very ESG based.
Some of it’s very anti-ESG based. You’ve got states that say you can’t invest in oil and gas companies. You’ve got states like Texas that say we’ll divest from an asset manager that does divest from oil and gas.
When legislatures and elected officials are getting involved in the actual day-to-day asset management, it’s a problem. Absolute violation of fiduciary duties gets very, very complicated very, very quickly. The role that legislatures can play though is related to transparency and oversight.
That’s what I meant. Yes. Transparency and oversight.
There are states that have entire legislative bodies that are made up specifically to oversee their state retirement systems. These systems, those legislative bodies, if the state pension funds and local pension funds themselves are not proactively voluntarily saying, we are going to issue a report. Here’s all of our AI-related investments.
Take a broad brush and a narrow brush on how they even want to define that. Do you want to include SaaS companies that are doing a part of the AI trade? Do you want to do just infrastructure investments?
There’s lots of ways in which you can approach the question, what the exposure looks like. If the pension funds themselves are not voluntarily doing that, it is absolutely the role of a legislative oversight body or city council or county executives to require a study or report of that kind from the pension funds that are in their jurisdiction.
Jeffrey Snyder, Broadcast Retirement Network
Likewise, let me carry it forward. Is there a role for the Securities and Exchange Commission, other entities regarding transparency? Again, I’m not trying to regulate what, I don’t think you should regulate what investments, although you don’t want to be crooked investments.
I think, is there a role for transparency? Because to your point, I’m not sure that there is transparency. Well, anyway, answer that question.
Anthony Randazzo, Equable Institute
There have been a substantial number of debates around what the SEC rules related to requirements on reporting like public capital are. And then over the last couple of years, they’ve been more heated than they have in the past. Shocking.
Yes. The role that the SEC would play in this level of transparency would be broader than public plans, right? There would not be a role for the federal government or a federal agency to require transparency of state and local retirement systems.
As a matter of fact, there’s almost no federal rules that those public retirement systems follow. They don’t have to follow any of the federal rules related to private sector pension plans, and they run their accounting in an entirely different process. That creates its own headaches.
So, if there was a role of the SEC in transparency, it would be on a broader level of private equity firms need to make more readily available information about the portfolio companies that they’re otherwise invested in. I can absolutely see a case for any private equity asset manager of wanting to keep certain information private about how they’re doing their investments, where there’s absolutely a case for that. Where we think the case falls down for public pension plans is that they are managing money in the public trust.
And if you’re managing money in the public trust, you do not have the latitude of being able to make secret investments, even if they could make you more money. That just should be part of the trade.
Jeffrey Snyder, Broadcast Retirement Network
Let me ask you, I’ve got to run, but it sounds like this is an issue you and the team are on top of. What’s next? What’s coming down the pike in terms of future research?
I would imagine this is something that needs ongoing pulling back the onions, but it’s layers of the onion, so to speak.
Anthony Randazzo, Equable Institute
Yeah. So, the report that we’ve issued this week is focused on what we do know about public equity investments. And we have issued some findings around private funds that we know are invested in AI-related companies and the pension funds that are invested in those private equity funds.
What the next stage of our work is going to be to try to systematically identify more of the AI portfolio companies that we can directly tie to pension funds. And an example, so the Anthropic S-1 has made this actually quite straightforward. The Anthropic S-1 lists investors, and we have been able to go through and say, all right, here are all of these funds that invested money in Anthropic.
We can go through our database and through public reports, and we’ve identified the public pension plans that were invested in those PE funds. And we’ve been able to identify about a dozen or so public pension plans that are going to generate a return from Anthropic. We want to do that on a more systematic basis for a broader scale of companies.
Jeffrey Snyder, Broadcast Retirement Network
Wouldn’t it be interesting if you actually use AI to do the research on AI? Anyway, that’s it. Don’t answer that.
Anthony, we’re going to have to leave it there. Great research. It’s all about transparency, folks.
Great to see you. Thanks for joining us, and we look forward to having you back on the program again very soon.
Anthony Randazzo, Equable Institute
Thanks, Jeff.