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Consultants warn of AI concentration and flag a real‑estate fund for review; pension returns outperformed in 2025
Summary
Pension consultants told the Board of Finance that 2025 produced strong market returns (pension portfolio ~14%, OPEB ~16.3%), but rising concentration in large U.S. AI‑exposed stocks and high valuations warrant cautious positioning. One real‑estate fund was placed on watch after manager turnover and will be reviewed over coming quarters.
Pension and investment consultants briefed the Simsbury Board of Finance on Feb. 17 on market themes, recent performance and portfolio positioning for the town’s pension and OPEB plans.
"One of the risks we see going forward is AI concentration in a handful of very large U.S. companies," consultant Kate Peasy told the board, urging a defensive and selective exposure to the area while maintaining some participation in transformative tech. She said international equities outperformed U.S. equities in 2025 and that consultants are underweight the largest U.S. names and overweight higher‑quality smaller‑cap companies as a diversification tactic.
Peasy reported calendar‑year returns for 2025 of roughly 14% for the pension portfolio and about 16.3% for the OPEB portfolio, and said the consultants’ updated capital‑market assumptions imply expected returns of about 7.1% for the pension plan and roughly 7.0% for the OPEB plan — slightly lower than prior assumptions but still above the town’s 6.5% discount rate for liabilities.
She also told the board that managers of one core real‑estate fund experienced leadership changes; the fund was placed on watch in 2025 and the consultants plan to return after additional quarters with a recommendation to maintain or replace the holding.
Tyler Anderson, who reviewed the town’s defined‑contribution plans, noted that target‑date funds have been the primary default for employees and that fee benchmarking and access to lower‑cost collective investment trusts remain areas to watch. He highlighted ongoing regulatory attention to private assets in defined‑contribution vehicles but said no immediate changes were recommended for the town’s plan lineup.
Board members asked how consultants verify market data and questioned what an appropriate cash‑yield assumption should be; consultants said they reference market futures and professional data sources and recommended conservative assumptions for near‑term cash yields.
The consultants said they will continue monitoring the watch‑listed funds and return to the board after additional performance and staffing data are available.
