European Pension Funds Face A Bleak Future Amid Politicization – Analysis

By Peng Maosheng

Recently, Denmark’s pension fund AkademikerPension announced that it had fully divested roughly USD 100 million in U.S. Treasury bonds. Against the backdrop of heightened tensions between the United States and Europe over the Greenland issue, this move is clearly more than a routine portfolio adjustment. Indeed, it can also be read as a pointed political signal. In fact, its Chief Investment Officer (CIO), Anders Schelde, has stated publicly that the long-term trajectory of U.S. public finances is unsustainable, and openly acknowledged that the Greenland dispute made the decision easier to take. Shortly thereafter, Greenland’s pension fund SISA also announced that it would halt investments in U.S. equities, explicitly framing the move as a symbolic act of resistance against the Trump administration.

This is far from the first instance in which AkademikerPension has allowed political considerations to shape its investment decisions. The fund has previously participated in coordinated pressure initiatives targeting multinational corporations, including Climate Action 100+ and Nature Action 100. Through such measures, it has sought to push pharmaceutical, energy, and manufacturing companies to comply with governance standards that extend beyond purely financial criteria. One particularly illustrative example is the fund’s full divestment from, and subsequent blacklisting of Tesla. Citing concerns related to labor relations, board independence, and Elon Musk’s personal political positions, AkademikerPension began reducing its Tesla holdings in 2023 and publicly argued that Musk was undermining the company’s brand and long-term value. That assessment, however, has not been supported by subsequent market performance. Following the divestment, Tesla’s share price continued to rise, at times even doubling over certain periods.

In addition, starting in 2019, the fund progressively sold off its holdings in oil and gas companies, aiming to exit businesses it believed were not taking climate change seriously. This included divestments from ExxonMobil, BP, Chevron, Shell, and TotalEnergies. Here too, the fund clearly missed the sharp upswing in commodities during the pandemic period. Taken together, these examples suggest that an increasingly politicized investment approach has materially weakened the fund’s ability to generate returns across several major asset classes.

AkademikerPension is far from the only fund affected by this trend toward politicization. The Netherlands’ largest pension fund, Stichting Pensioenfonds ABP, significantly reduced its holdings of U.S. Treasuries in 2025 while increasing its exposure to German government bonds. Over the same period, it sold its stakes in Meta, Alphabet, and Tesla. ABP’s Chair of the Executive Board, Harmen van Wijnen, stated that these companies no longer met the fund’s governance standards. ABP had previously made it clear that it intended to scale back investments with a large climate footprint and to allocate more capital to companies and projects that contribute positively to social and environmental outcomes. It is perhaps under this rationale that a number of U.S. technology firms, despite still having solid fundamentals and strong operating performance, were excluded from its investment universe.

At the same time, during the intense standoff between the U.S. and Europe over tariffs in March 2025, European pension funds as a whole accelerated their exit from U.S. equity markets and increased their exposure to European stocks. Data show that within the span of a single week, European pension funds sold roughly USD 2.8 billion worth of U.S. equity funds and invested about USD 5 billion into European equities. Among them, Denmark’s pension fund PensionDanmark shifted USD 2 billion in equity investments from the U.S. market to European markets, an amount equivalent to 10% of its total portfolio. Finland’s pension insurer Veritas reduced the share of U.S. equities in its portfolio from 46.2% at the end of 2024 to 24.1%, while raising its holdings of European equities from 19.8% to 25.3% and increasing its allocation to Finnish domestic stocks from 23.0% to 32.0%. Swedish pension funds sold approximately USD 1.3 billion of North American equity funds in February and increased investments in Swedish equities by about USD 2.2 billion, while adding roughly USD 700 million to equity funds in other European countries.

The underlying cause is the increasingly visible rift between the U.S. and Europe. ANBOUND’s founder Kung Chan noted that in the period ahead, the central contradiction in international relations will lie in tensions between the U.S. and Europe. This assessment has become ever more apparent, from U.S. Vice President J D Vance’s sharp criticism of Europe at the Munich Security Conference, to repeated clashes over trade issues, and to the redefinition of Europe’s role in the latest U.S. National Security Strategy. From the perspective of political finance as advocated by ANBOUND, ideological confrontation between the two blocs has also triggered what can be described as a form of geo-financial warfare. The question, however, is whether in such a politicized environment, selling U.S. assets is really the better option.

This question can be approached along two analytical paths. One follows the logic of traditional finance, focusing on indicators, data, and curves. The other looks at the issue from a political perspective, examining the underlying logic of how financial markets are shaped by forces of manipulation and influence. The latter is the perspective that ANBOUND refers to as political finance.

From the perspective of political finance, the U.S. capital market remains something Europe cannot realistically replace. Data show that as of 2025, the total market capitalization of European equity markets is estimated at about EUR 22.71 trillion, less than half that of the U.S. stock market. The contrast is similar in bond markets, where the U.S. market is larger in scale and offers a far wider range of instruments. The world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global, treats U.S. bonds as a liquidity buffer because assets of this kind can be liquidated in amounts of tens of billions of dollars within a single week without disrupting the market. The Norwegian government has even moved on an emergency basis to suspend parts of the review authority of its independent ethics council, precisely out of concern that politically driven divestment could threaten the fund’s core holdings and its long-term return potential.

From the perspective of asset quality, the gap between the U.S. and Europe is equally evident. The U.S. listed companies are the world’s most advanced technologies and business models, with innovation highly concentrated in areas such as artificial intelligence, cloud computing, and biotechnology. By contrast, European markets are dominated by mature industrial and consumer goods companies. In an environment marked by deglobalization and a shrinking pool of globally scalable markets, this structural difference is likely to become an increasingly significant constraint on the growth of European listed firms. At the same time, some analyses point out that many European technology companies have been drawn to the U.S. by higher valuations and a more unified regulatory environment. The picture is similar on the debt side. Although the U.S. faces a pronounced fiscal deficit, Europe, with its high welfare spending and substantial defense expenditures, is also confronting serious challenges to fiscal sustainability. UBS Group Chief Executive Officer Sergio Ermotti has stated bluntly that Europe finds it difficult to identify any alternative asset that could replace U.S. Treasuries as the core risk-free asset of the global financial system.

As strategic divergences between the U.S. and Europe continue to widen, European pension funds will find it increasingly difficult to maintain genuine investment neutrality, no matter how many polished concepts or justifications are invoked. Political demands in Europe for “strategic autonomy” and “reduced dependence” are steadily being transmitted to pools of long-term capital. Once pension funds allow portfolio decisions to be driven more by political considerations than by risk-return optimization, their long-term performance is bound to suffer, and the ultimate cost will be borne by the general public. A decline in returns would further amplify Europe’s internal structural tensions. On the one hand, welfare systems rely heavily on stable investment income. On the other, defense spending requirements continue to rise. As Kung Chan has repeatedly pointed out, in such a forced choice, Europe faces the risk of economic collapse and the breakdown of its welfare system. The only uncertainty is timing. Politicized investment may convey positions and attitudes in the short term, but over the long run, it can only erode the economic foundations that sustain public finances.

With intensifying confrontation between the U.S. and Europe, the growing politicization of European pension systems can indeed convey clear political signals. However, the advantages of U.S. financial markets remain difficult for Europe to match. Voluntarily forgoing access to high quality assets may ultimately come at the cost of lower pension returns, further exacerbating the tension between welfare systems and security related spending, and creating a long-term challenge that will be hard to avoid.

Final analysis conclusion:

Against the backdrop of growing transatlantic tensions, European pension funds, driven by political considerations, have continued to sell off U.S. assets and shift toward domestic allocations. Politicized investment strategies, exemplified by Denmark’s AkademikerPension and the Netherlands’ ABP, have repeatedly missed out on market gains. Yet the U.S. financial market remains unmatched in depth, liquidity, and asset quality. If pension funds deviate from the principle of risk-return optimization, their long-term returns will come under pressure, further amplifying the structural tensions between Europe’s welfare systems and defense spending.

• Peng Maosheng is a researcher at ANBOUND, an independent think tank.