Strong investment returns, driven largely by concentrated holdings in AI-related stocks, have helped U.S. public pension funds reach their best funding levels in nearly two decades. Reports say 13 funds have seen a combined $138 billion surge since 2022, helping pensions recover from earlier financial downturns.
The rally has been heavily influenced by the Magnificent Seven, including Microsoft, Apple, Nvidia and Alphabet.
But reliance on a handful of technology companies has created concentration risk. Some large pension funds, including CalPERS, have begun reducing their direct holdings in these stocks. Institutional investors are also raising concerns about overexposure to the AI theme.
The gains come amid growing political and community opposition to AI infrastructure development, citing energy consumption and environmental impacts. That opposition could create headwinds for future growth.