Key Takeaways
- • Equable Institute estimates state and local pension systems hold between $578.1 billion and $706.6 billion in AI-related companies, 9% to 11% of $6.42 trillion in state and local pension assets, per a Nov. 4 analysis.
- • The 51 largest publicly traded AI-related companies account for 35.1% of all reported public equity investments by state and local pension funds as of June 30; the Magnificent 7 represent 63% of AI-related dollars.
- • Equable CEO Anthony Randazzo says lower-funded plans (75% to 85%) with high AI exposure are most vulnerable, and that a 25% to 50% decline could push national funded ratios from roughly 86-87% toward 80% or lower.
- • Randazzo urges pension plans to model broad market effects of an AI selloff, including private AI holdings, funded ratios and required contributions, rather than predicting the trigger.
- • Nvidia shares fell 4.3% on Nov. 9 after its board launched a probe into its CEO, which Randazzo cited as an example of sudden downside risk.
Summary
State and local pension funds carry significant exposure to artificial intelligence technology that could amplify losses during a market downturn, according to a Nov. 4 analysis by the nonprofit think tank Equable Institute, as reported by Pensions & Investments. Equable estimates that state and local pension systems hold between $578.1 billion and $706.6 billion in AI-related companies, equal to 9% to 11% of the $6.42 trillion in state and local pension assets. The firm describes this range as a "conservative, lower-bound estimate." As of June 30, the 51 largest publicly traded AI-related companies accounted for 35.1% of all reported public equity investments by these funds. The Magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) make up 63% of AI-related dollars.
In an interview with Pensions & Investments, Equable founder and CEO Anthony Randazzo said plans should model the broad market effects of a major AI selloff, including the impact of private AI holdings, funded ratios and required contributions. National public pension funded ratios are close to 86% to 87%. Declines of several hundred billion dollars could push that figure toward 80% or lower, depending on severity. Randazzo said plans funded at 90% to 95% would likely be less affected, while plans funded at 75% to 85% with higher AI exposure could be the most vulnerable. "If there is a 25% or 50% value decline, what does that do to their funded ratio and how that translates to their contributions?" he asked.
Randazzo urged pension systems to publish their own assessments of AI exposure. He cited the $95 billion Los Angeles County Employees Retirement Association, based in Pasadena, Calif., which published a public report in July detailing its AI technology investments. He said such disclosure lets stakeholders understand the scope of exposure. Randazzo also pointed to the 4.3% drop in Nvidia shares on Nov. 9, after its board launched a probe into its CEO, as an example of why plans should prepare for sell-offs rather than attempt to predict their triggers. Equable's data show Nvidia ranks first among companies with the largest share of AI-related holdings, at 14.8% in the second quarter, up from 2.6% previously.
In an interview with Pensions & Investments, Equable founder and CEO Anthony Randazzo said plans should model the broad market effects of a major AI selloff, including the impact of private AI holdings, funded ratios and required contributions. National public pension funded ratios are close to 86% to 87%. Declines of several hundred billion dollars could push that figure toward 80% or lower, depending on severity. Randazzo said plans funded at 90% to 95% would likely be less affected, while plans funded at 75% to 85% with higher AI exposure could be the most vulnerable. "If there is a 25% or 50% value decline, what does that do to their funded ratio and how that translates to their contributions?" he asked.
Randazzo urged pension systems to publish their own assessments of AI exposure. He cited the $95 billion Los Angeles County Employees Retirement Association, based in Pasadena, Calif., which published a public report in July detailing its AI technology investments. He said such disclosure lets stakeholders understand the scope of exposure. Randazzo also pointed to the 4.3% drop in Nvidia shares on Nov. 9, after its board launched a probe into its CEO, as an example of why plans should prepare for sell-offs rather than attempt to predict their triggers. Equable's data show Nvidia ranks first among companies with the largest share of AI-related holdings, at 14.8% in the second quarter, up from 2.6% previously.
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