Britain demands examination of pension investment portfolios

The British pension regulator is asking pension fund trustees to test their portfolios for exposure to concentration risks in artificial intelligence, warning that this exposure may be hidden within investments spread across different sectors, and calls for a full portfolio review.

The British pension regulator has asked pension fund trustees to test their portfolios for exposure to concentration risks in artificial intelligence, warning that this exposure may be hidden within investments that appear spread across different sectors. It called for a full portfolio review, not just the share of technology company stocks. Potential links include infrastructure, energy, real estate, and finance, alongside tech companies. According to the regulator, these assets could be affected together if the pace of AI adoption disappoints expectations, regulatory constraints intensify, or overinvestment emerges. The regulator expects trustees to hold their advisors accountable for these exposures and conduct stress tests. This means estimating portfolio performance under difficult but reasonable conditions. The guidelines emphasize that the response should be proportionate to the risks and does not automatically mean divesting from AI-related investments. The Bank of England had outlined in its July Financial Stability Report two interconnected risk channels: financing the infrastructure needed for the technology and the pace of its adoption in the economy. It noted that changes in expectations about its use and profits could affect asset prices and financing conditions before actual results appear in economic activity. According to the bank, the reliance of the companies involved on external financing has expanded, including public debt, private credit, and bank loans.