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Investors fear liquidity crisis, military conflict, cyberattacks, PGIM tail-risk survey finds

Institutional investors still reeling from the impact of the COVID-19 pandemic know the risks of unlikely but devastating “black swan” events, but many are ill-prepared for the ones they fear the most, according to a new survey from PGIM, the $1.2 trillion global investment management business of Prudential Financial, Inc. (NYSE: PRU).

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Shehriyar Antia, Head of Thematic Research, PGIM (Photo: Business Wire)

Shehriyar Antia, Head of Thematic Research, PGIM (Photo: Business Wire)

The survey of 400 senior investment decision-makers at institutional investors in Australia, China, Germany, Japan, the U.K. and the U.S. with combined assets under management of more than $12 trillion, found that while tail risks varied by region, the predominant concerns center around the relationship between the U.S. and China, market function in times of stress, and the dependence on technology within financial markets. While over half of large institutions ($50 billion and above) actively monitor tail risks, overall for institutions of any size, less than 4 in 10 do so (38%). A tiny proportion (3%) of institutions have a dedicated tail-risk manager, and less than a third (32%) prepare specific risk response plans.

“Too often investors are surprised by things that in retrospect were staring them in the face,” said Shehriyar Antia, head of Thematic Research for PGIM. “The pandemic, the global financial crisis, the dot-com bubble — these events were all foreseeable to different degrees. Financial institutions must either gameplan for the unexpected, or expect to be blindsided.”


Presented with geopolitical, economic, social and environmental scenarios ranging from a eurozone country debt default to a nuclear attack, respondents named their top three tail risks:

  • An unexpected liquidity crunch in key capital markets (U.S. Treasuries, commodities, etc.) that results in a market crash. The tail-risk scenario seen as having the greatest market impact and one for which investors are least prepared is a major liquidity event in financial markets. A liquidity event in a “safe haven” like U.S. Treasuries would have cascading effects that neither capital providers nor investors would necessarily be prepared for.
  • Military conflict in the Taiwan Strait or South China Sea. A military conflict in the Taiwan Strait or South China Sea would have stark ramifications for global financial markets, so it’s no surprise institutional investors cited such a conflict as their second-highest tail risk, and one they feel least prepared for. According to the Semiconductor Industry Association, if Taiwan semiconductor production were to shut down for a year, the cost to annual revenue for device makers worldwide would be $490 billion.
  • A cyberattack disables a major financial platform or government agency for a significant period of time. Only 30% of respondents said they are prepared for such a major cyberattack — despite this being seen as one of the most likely tail risks to occur over the next three years.


By definition, tail risks are rare and unexpected, which makes them exceedingly difficult to prepare for. But there are ways investors can hedge their bets.

  • Investors acknowledge a variety of gaps and shortcomings in their investment risk monitoring, chief of which are failure to detect risks early (36%) or react to them speedily (41%).
  • More than a third also say they are unable to predict black swans (36%) and, worryingly, nearly 3 in 10 identify risk management complacency as a key challenge.
  • Institutional investors deploy three main approaches to monitor investment risk: holistic monitoring across asset classes (44%), regular risk scenario analysis (41%) and regular evaluation of the effectiveness of risk management processes (41%).

“The best insurance against such rare and complex events is taking a long-term view and diversifying portfolios,” advised Antia. “Active managers can build portfolio strategies that will protect investors in a variety of scenarios.”

Monitoring leverage, collateral arrangements, and liquidity positions through these shocks can help investors avoid becoming a forced seller while the event is unfolding. When considering risks that are subject to extreme outcomes (and potentially not diversifiable), investors should also consider stress testing as opposed to looking at traditional statistical measures that make assumptions which may not be realistic for some exposures.

For more information and country-specific data, read the full report: 2022 Global Risk Report: Tail Risks.


The study gathered the views of 400 institutional investors globally from defined benefit pension funds, corporate pension funds, sovereign wealth funds, central banks, endowments and foundations. The online survey was conducted by CoreData Research between June and July 2022, along with eight qualitative interviews conducted globally across a similar mix of institution types. Investors evaluated possible tail risks according to likelihood, severity and preparedness.

Respondents are aged 30-70 and have been in their current role for at least one year. Almost all (94%) investors are from firms with at least $1 billion in current AUM. A further 2% are from U.S. endowments and foundations with current AUM of at least $250 million. The study was blind with no mention of PGIM or Prudential. Respondents were offered an incentive to participate (a financial payment, charitable donation or tracked planting of trees).


PGIM is the global asset management business of Prudential Financial, Inc. (NYSE: PRU), a leading global investment manager with nearly $1.2 trillion in assets under management as of September 30, 2022. With offices in 17 countries, PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including public fixed income, private fixed income, fundamental equity, quantitative equity, real estate and alternatives. For more information about PGIM, visit

Prudential Financial, Inc. (PFI) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. For more information please visit


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