Pensions and sovereign wealth funds with many billions to invest are finding the diversification they once relied on is an illusion.

The private equity fund looked promising. The manager had a decent track record. And the $327 billion New York City Retirement Systems, known as NYCRS, certainly had capacity to make an allocation. But for Monte Tarbox, the pension funds’ chief investment officer, the decision was easy — a hard pass. The issue: the product being pitched to him was heavy on artificial intelligence holdings, and Tarbox is becoming cautious about how exposed NYCRS gets to the boom. Not because of any of the existential dread currently dominating headlines, but for more mundane reasons: his job is to diversify, and right now he sees AI everywhere he looks.