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A black swan comes home to roost in this illustration of the 2008 crash. State Street Global Advisors research found top money managers feared another tail-risk event like Lehman’s bankruptcy. Another term for tail-risk events was popularized by academic Nassim Taleb’s 2007 book: The Black Swan.

Anthony Jenkins/The Globe and Mail

The world's biggest investors fear a fresh market crisis will erupt in the next 12 months amid worries that troubles in the euro zone will hit global growth and cause disruption in the financial system similar to the collapse of Lehman Brothers.

More than 70 per cent of investors warn that a so-called tail-risk event, an external shock that causes a market sell-off and potentially threatens the financial system, will happen in the next year, says State Street Global Advisors.

State Street, the third biggest manager of money in the world, said 71 per cent of investors in a survey of 300 around the world, including the largest pension funds, asset managers and private banks, fear an imminent Lehman-like event.

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Another term for tail-risk outlier events was popularized by academic Nassim Taleb's 2007 book: The Black Swan.

Two thirds of the investors surveyed said the tail-risk event would be triggered by the global economy falling into recession, another two thirds said it would be caused by the break-up of the euro and a fifth said it would be caused by a bank insolvency.

Others cited a slowing Chinese economy, an oil price shock and monetary stimulus causing new asset bubbles that would create financial turbulence as possible causes of a fresh market crisis.

Only 20 per cent of the respondents were very confident that they were protected against tail-risk events. In September 2008 when Lehman collapsed, most strategies to guard against these events failed as many markets sold off or seized up. Even buying safe U.S. Treasuries did not work as yields went negative, offering negative returns.

One senior portfolio manager at a U.S. asset manager said: "You would have been better off sticking your money under a mattress in 2008. Frankly, that could be the best strategy today, too. At least you keep your cash and inflation is very low."

The asset class likely to be hardest high by a tail-risk event is the currency market, according to respondents. They said this was because of worries over monetary stimulation that could cause currencies to be debased.

Strategies used to protect against a tail-risk include managed volatility equity strategies, direct hedging, other alternative asset allocation such as buying property or commodities and managing futures.

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The biggest barrier to overcoming tail-risk events and protecting portfolios is lack of liquidity of underlying assets. This was one of the biggest problems for investors in 2008 as credit and money markets seized up, meaning asset managers could not liquidate their positions or sell to exit the market.

"In 2008, there was little you could do with many of your assets," said a bond strategist at a U.K. investment fund. "In fact, all you could do was sit and watch your assets lose value as there were no buyers. Everyone wanted to sell. It is possible we could end up in a similar position again."

The U.S. asset manager said: "This fear is the reason why so many people have money in cash. Some funds have up to 40 per cent of their money in cash, which is historically very high. Usually, even the most risk-averse fund would have only 5 per cent in cash at most."

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