Tail-risks are the new black swans as the next big threat to investors, PGIM says
Institutional investors may not be ready for so-called “tail-risk” that threaten market function in times of stress.
PGIM surveyed institutional investors around the globe to identify tail risks with a perceived low likelihood of occurrence, but potentially high impact and a low level of preparedness. Our survey aims to provide insights on where these risks may present a weakness for institutional investors, to discuss lessons learned from the past, and to offer insights on how to best prepare for severe risks.
The predominant concerns of institutional investors center around:
About Our Methodology
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 the following possible tail risks according to likelihood, severity and preparedness:
Institutional investors surveyed are from six countries: US, UK, Germany, Australia, China, and Japan. Respondents are aged 30-70 and have been in their current role for at least one year. The investors surveyed are responsible for managing total assets of over $12 trillion. Almost all (94%) investors are from firms with at least $1 billion in current AUM. A further 2% are from US endowments & 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).