Pension funds heavy in AI companies – billions up in smoke

The scandal exploded last weekend when Nvidia CEO Jensen Huang confirmed that he had an affair with Alice Huang, who has been identified as a Chinese spy by US authorities.

It was followed by reports of more infidelity affairs and the events led to Jensen Huang being forced to resign - 33 years after he founded the company.

Since the stock market opened on Monday, the company's market value has decreased by more than 12 percent to just over 4,000 billion dollars. It has become a hard blow for both small savers and pension managers as Nvidia makes up a large share of both global, US and technology funds.

On Friday, the share price fell by just over 2 percent. For the Seventh AP Fund, which owns the most shares in Nvidia among the state pension funds, almost SEK 8 billion can be wiped out in the downturn.

- AP7 is an index fund that follows a global world index where Nvidia and several tech companies are the largest companies, and then they also become the largest holdings in the fund, says Maria Landeborn, senior strategist at Danske Bank.

- If these fast-growing companies had been selected five years ago, it would have been a huge mistake. Then the return would have been much lower on the day you retire in perhaps 20 years or even further away, she continues.

The other AP funds have also been sitting on billion holdings. Calculated on the number of shares at the end of the year, when the funds last reported their holdings, the total value of the Nvidia shares through Thursday fell by SEK 12.1 billion since the stock market opened on Monday, DN's calculations show.

- Looking at the AP funds' total managed capital, the decline is just under 0.3 percent. It sounds like huge sums when you look at it in billions, but percentage-wise it is no more than what the stock exchange fluctuates on a normal day, says Maria Landeborn.

She also points out that Nvidia is down 10 percent this year, but in five years the stock has risen by 450 percent.

It is something that has attracted many managers to buy. Therefore, Nvidia weighs heavily in many portfolios. In pension giant Alecta, for example, Nvidia was the largest holding with 4 percent of the managed capital at the end of September. In the pension company AMF's large global fund, Nvidia accounted for 6.8 percent of the holding in the latest report.

Maria Landeborn believes that if you have a high exposure to Nvidia without knowing it, for example owning both a global fund and a tech fund, it may be time to review the exposure.

- But if you only have one global fund in your savings, then you can very well keep it because these tech companies are doing so well and huge investments continue to go there, says Maria Landeborn.

Although large sums of money have disappeared in the wake of the CEO scandal, Agneta Claesson, pension specialist at the Swedish Pensions Agency, downplays the problems.

- No one should lose sleep over this. The vast majority have a long way to go until retirement and that will be able to turn around. It has so far and it is still quite a bit of money when you look at an individual person, she says.

- When you think long-term, you have to take a little risk in order to get better development on your pension, she continues.

For Jensen Huang, hearings are now pending in the US Congress while the FBI investigates the events.

- This is a very big scandal that becomes very dramatic when it comes to one of the world's largest companies measured by market capitalization. Many small savers own Nvidia both through shares and through funds, while the CEO has become a mega-celebrity, says Maria Landeborn.

According to her, the quick exit was the best outcome as more turbulence for Huang could mean more volatility for the stock.

- This is a very special situation when Jensen Huang has been the face of the entire company. But Nvidia's business remains, the order books are still full for a long time and they don't lose contracts because of this, says Maria Landeborn.

During the next week, it is time for the company's acting CEO and former CFO, Colette Kress, to present how the third quarter has looked.

On Friday, the company's share price continued down in the opening trade on the American Nasdaq exchange.