We document a network-level vulnerability in pension-fund systems: lifecycle allocation regulation, designed to protect individual participants, compresses cross-fund return dynamics to the point where provider choice offers little diversification. Using daily net asset value data from second-pillar pension funds in Lithuania over 2019–2025, we found that a single common factor explains more than 72% of total return variance even in the calmest observed periods. We develop an unsupervised regime-detection framework that combines a PCA-based absorption ratio, DTW-based hierarchical clustering, and a Gaussian hidden Markov model with a data-driven crisis threshold. The HMM specification is supported by a dual empirical calibration of the stickiness prior, and its emission estimates agree closely with a fully Bayesian sticky-HMM specification. The framework identifies three latent regimes in which elevated systemic co-movement is the structural norm rather than an exceptional state and shows that funds separate first by lifecycle segment (conservative versus growth cohorts) and only secondarily by provider, with no single label axis reproducing the structure on its own. The absorption ratio has no significant relationship with global equity benchmarks in either calm or High-Concentration regimes, indicating that the detected regimes are not explained by the external benchmarks considered, including global equity indices and a euro-area rate/bond proxy. Cluster-level mean-absolute-active-return amplification of 1.06× to 1.33× during High-Concentration episodes confirms that even conservative funds serving retirement-age participants are not insulated.
Nkamga et al. (Wed,) studied this question.