Some pension funds are reassessing their stance on the Dodd-Frank Wall Street Reform and Consumer Protection Act, with sentiment moving toward concern rather than support.

When the sweeping legislation was first signed into law in 2010, some pension investment executives cheered the act and its potential to stave off another financial crisis as was seen in 2008-2009. U.S. pensions saw investment declines of 20% to 25% or more through the crisis, which many say was touched off by a largely unregulated over-the-counter derivatives market, so their optimism could be understood.

The massive California Public Employees’ Retirement System took the lead in affirming its support for Dodd-Frank.

“This reform is a response to a near major meltdown of our financial system,” George Diehr, chair of the CalPERS Investment Committee, said in a July 2010 release. “These reforms significantly address underlying weaknesses in our regulatory system that could have resulted in yet another financial crisis.”

Two years later, Dodd-Frank is moving toward implementation in fits and starts, and much of the final rule-writing and implementation still lies ahead. The promise of the reform preventing a subsequent crisis remains, but as more time passes since the last crisis, the sense of urgency to enact new regulation wanes.

Beyond that, pensions and other institutional investors do not like some of what they see in the market ahead of Dodd-Frank implementation. The specific sticking point is the so-called Volcker Rule included in Dodd-Frank, which is aimed at reining in the speculative trading of big banks.

While the Volcker Rule remains pending, some market participants have moved to get out ahead of the regulation by jettisoning or restructuring trading desks. The net result has been less liquidity, especially in fixed-income markets; pensions worry that liquidity will erode further upon finalization of the Volcker Rule, and weigh on investment performance.

A top executive at a large public pension plan recently told Markets Media that he supports the overarching aim of Dodd-Frank, but some specific aspect of the legislation are troubling.