UK Pension Funds Pull Back From US Equities as AI Bubble Fears Grow
Summary
UK pension funds are reducing exposure to US equities as concerns grow over market concentration and a potential AI-driven bubble.
Heavy reliance on a small group of US tech stocks has increased risk for long-term savers, particularly in defined contribution schemes.
Funds are responding through diversification, selective rebalancing, and defensive strategies rather than wholesale exits.
UK pension funds are scaling back US equities as worries mount over the market’s increasing dependence on a handful of technology stocks. For many schemes, the fear is not short-term volatility but the long-term risk of an AI bubble forming at the heart of global indices.
The rally in US equities has been driven largely by a small group of mega-cap tech names. This concentration has left pension funds exposed to sharp corrections if sentiment around AI investment shifts.
Defined contribution schemes are particularly sensitive to these risks. Younger savers often hold most of their pension assets in global equity funds that are heavily weighted toward US tech stocks.
Several large pension providers have begun reducing US equity exposure or adding downside protection. Rather than exiting markets entirely, many are reallocating toward UK, Asian, or alternative assets.
AI remains a powerful growth theme, but valuations across US equities have reached historically high levels. For pension funds, this creates a difficult balance between participating in upside and protecting members from drawdowns.
Some funds are choosing diversification over divestment. Exposure is being shifted within US equities toward more stable companies or balanced with assets such as bonds, gold, and private markets.
Others are taking a more selective approach by trimming positions in the most crowded AI trades. This allows continued participation in innovation while reducing reliance on a single narrative driving US equities.
Despite the caution, not all pension funds believe an AI bubble has fully formed. Strong earnings growth continues to support parts of the US equity market, keeping managers wary of cutting exposure too aggressively.
What is clear is that concentration risk is now firmly on the radar. For UK pension funds, managing US equity exposure has become less about chasing returns and more about protecting long-term retirement outcomes.