One of the drivers behind the five consecutive declines in US stocks? Large American pension funds are taking profits
Large American pension funds are cashing out of US stocks, reducing their holdings by $325 billion and reallocating to bonds and private equity. This is due to the overvaluation of US stocks and the high interest rate environment, with fund managers evaluating risks and adjusting their investment portfolios. In response, some pension funds are moving funds into bonds and alternative investments to seek stable returns and reduce risks
Major U.S. pension funds are withdrawing nearly a trillion U.S. dollars from the U.S. stock market and shifting to bonds and private equity.
Under the dual impact of the high valuation of the U.S. stock market and the "high interest rate environment," fund managers are evaluating the cost-effectiveness of bearing stock market risks and adjusting their investment portfolios.
On one hand, after major U.S. stock indices hit historic highs, reducing holdings in U.S. stocks not only locks in existing profits, but the current return on bonds can also meet their income requirements.
On the other hand, in the high interest rate environment where the Federal Reserve's interest rate cuts seem distant, fund managers can obtain a substantial return of around 5% from risk-free investments (bonds) without taking on more risks.
In response to this, Zorast Wadia, head of Milliman and consulting actuary, commented, "If the stock market falls, you wouldn't want to give back all the hard-earned profits."
According to Federal Reserve data, as of the end of 2023, corporate and state and local government worker pension funds collectively hold around $90 trillion. Among them, Goldman Sachs analysts estimate that pension funds will sell $325 billion in stocks this year, higher than the $191 billion in 2023.
Corporate pension funds are shifting funds to bonds, while state and local government funds are replacing stocks with alternative investments. The largest public pension fund in the U.S., the California Public Employees' Retirement System (CalPERS), plans to move around $25 billion from the stock market to private equity and private debt.
The Alaska Permanent Fund Corporation (APFC), managing $80 billion in assets, is reducing the risk exposure of its stock investments. The fund plans to reduce the proportion of its stock investment portfolio from 36% in the 2023 fiscal year to 32% in 2025, and has scrapped plans to reduce the proportion of bond investments from 20% to 18%.
Marcus Frampton, Chief Investment Officer of APFC, stated that due to rising interest rates, APFC can still achieve a 5% return from bonds to meet its investment goals, while stocks could potentially incur losses. Frampton said, "When the stock market is very expensive, bad things can happen."