Risk Hiding in Plain Sight
Clients started sending us retirement accounts they held elsewhere and asking what was in them. We looked at a lot of them, because the first few were concerning enough that we wanted to know whether they were unusual. They weren't.
Take somebody around fifty, retiring in 2040. What they typically get is a target-date fund holding four things. Now look underneath it.
| What the plan holds | Weight | What it is really exposed to |
|---|---|---|
| US equities | ~45% | AI concentration |
| International equities | ~21% | AI concentration, via the supply chain |
| Bonds | ~25% | Sovereign debt repricing |
| Private equity & private credit | ~9% | Impaired tech-adjacent credit |
The US sleeve is an index fund owning thousands of companies, and it's index tracking, so what you're getting when it's all said and done is the S&P 500. The usual suspects. Nvidia, Apple, Microsoft, Amazon. The top eight names are about 30% of it. You'd think the international sleeve gets you away from that. Its four largest holdings are Taiwan Semiconductor, Samsung, ASML and SK hynix, which are the companies manufacturing the chips the whole AI buildout runs on.
The private equity slice was meant to diversify away from equities, and a lot of that money is now lending to AI firms. It isn't achieving anything either. It's just adding risk. And the bonds, the part that's supposed to be safe, are the pivotal market, because sovereign bonds reprice everything else. These AI companies have taken on serious debt. Rates go higher, their cost of capital goes higher, and that impairs the equity.
People think they're well diversified because they hold four things. The correlations are a lot closer to one than that. Anyone who sat through 2022, when bonds and equities went down together, has seen a smaller version of it, and there's more leverage in the market now than there was then.
The other thing worth noticing is what these plans don't own. In the one we went through, energy was about 4% and basic materials about 4%. Minuscule.
That example is a US plan, because it's what most of the statements we were sent looked like. If your pension is held in the UK, Australia, New Zealand or Europe, the exposures are much the same, because these plans are all built out of the same handful of global index funds. If anything it's more direct, because the global fund that was supposed to be your diversified option has the US market as its largest single exposure. And the bond problem isn't a US-only trade either.
The presentation
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If you want the full walk-through, with every chart and source: the detailed version
Have your own plan reviewed
We don't know when any of this matters. Nobody does. But it's worth knowing what you're actually invested in, rather than assuming you're diversified because the statement says four different things. Send us your retirement plan statements and Chris and Brad will go through them with you. You'll see:
- What you actually own once you look through the funds to their holdings
- Where the concentrations sit, and which of your sleeves are the same bet
- What isn't in there at all
Chris and Brad do these personally. You get the analysis whether or not it goes anywhere.
Send your most recent statement across beforehand, or bring it to the call, and we'll have the analysis done when you arrive.
Who we can take on
If you're already a client, you can add whatever you like to what you hold with us. There's no minimum on additions, though we do ask that you tell us the total in advance so we can plan the allocation.
If you're not a client yet, a new managed account starts at $200,000 across the strategies, and SEC rules mean we can only take on accredited investors.
Retirement money itself isn't an obstacle. We work with qualified custodians for IRA and 401(k) rollovers, and a good number of clients use exactly that as their diversification. Minimums, fees and custody are all covered in the FAQ.
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This page is for informational and educational purposes only. It is not investment advice, a recommendation to buy or sell any security, or an offer of advisory services, and it does not account for the objectives or circumstances of any individual. Advisory services are available to accredited investors only, subject to a $200,000 minimum. Third-party data referenced in the presentation and report is attributed to its source and believed reliable but has not been independently verified. Past performance is not indicative of future results.