Pension scheme trustees must stay on top of risks posed to investment portfolios by the proliferation of artificial intelligence technologies, the Pensions Regulator (TPR) has said.
TPR this week published new guidance to assist trustees with identifying and managing “potential hidden AI-related investment exposure”.
The regulator also reiterated its expectation that trustee boards should “maintain high standards of investment governance and manage risk over the short, medium, and long term”.
Ben Gunnee, executive director of market oversight at TPR, said: “Trustees should assess their AI-related exposure, test portfolio resilience and challenge advisers now to understand how market developments could affect their investments under different market conditions.”
The guidance outlines that the expansion of AI usage across industries, sectors, and regions means new risks and opportunities are emerging for pension schemes.
Because of how AI is becoming embedded in company operations, TPR warned that “even a diversified portfolio may have hidden exposure to common AI-related risks”.
Global and US equity markets are currently dominated by giant technology companies such as Meta and Alphabet, and this dominance is only likely to increase in the short term as mega-IPOs such as SpaceX and Anthropic bring more tech groups to listed markets.
Recently, the same tech giants have been issuing debt to finance the expansion of their AI capabilities, leading to fears of a similar concentration risk in bond markets.
TPR cited data showing that investment in AI-related activity had grown by 127.5% year-on-year.
The regulator said it expected schemes to assess portfolio exposure to AI, make use of scenario analyses, and review diversification for potential AI risks in various asset classes. It also told trustees to challenge consultants and managers over potential market developments and to “take proportionate action that reflects the scheme’s circumstances”.
