Black Swan Risks Heading into 2016 [Chart]
SocGen’s latest evaluation still sees steep downside risk to market
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Société Générale has come out with their most recent list of what the bank considers to be potential “black swans” to the market.
France’s third largest bank publishes this list as part of their Global Economic Outlook. As several users have pointed out in the past, we are indeed aware that black swans are by nature unlikely and extremely difficult to predict. We agree with this, but we do find SocGen’s list a useful way of understanding some of the upcoming risks in the market that could sway investor sentiment and opinion.
In the latest edition of the report, which was published this week, the bank still sees an excess of potential downside risks to the global economy. The greatest of these risks, slated at only a 10% probability but with maximum impact potential, is a new global recession. The report mentions as well that a hard landing in China could have similar effects.
Downside risks and their probability:
- 45% – Great Britain leaves the EU (Impact: low)
- 30% – China’s economy has a hard landing (Impact: high)
- 25% – U.S. consumers save more than expected (Impact: medium)
- 10% – Fed hikes too late (Impact: medium to high)
- 10% – New global recession (Impact: high)
Upside risks and their probability:
- 20% – Stronger investment and trade (Impact: medium to high)
- 15% – More fiscal accommodation (Impact: medium)
- 10% – Fast track reform (Impact: low)
One risk that could be added to the mix is some sort of a deflationary spiral. These are words that no central banker wants to hear, but signs of deflation are popping up all over the market. For example, as we showed in a recent chart, nearly all commodities got hammered over 2015.
The impact of such a spiral would be catastrophic, and the Fed has limited means to combat such an event. That said, it is tough to discern whether deflation will continue to be found sprinkled benignly throughout the economy, or if it could somehow snowball into the full-on death spiral.
Black swan indeed.
Ranked: The World’s 100 Biggest Pension Funds
The world’s 100 largest pension funds are worth over $17 trillion in total. Which ones are the biggest, and where are they located?
Ranked: The World’s 100 Biggest Pension Funds
View the high-resolution of the infographic by clicking here.
Despite economic uncertainty, pension funds saw relatively strong growth in 2021. The world’s 100 biggest pension funds are worth over $17 trillion in total, an increase of 8.5% over the previous year.
This graphic uses data from the Thinking Ahead Institute to rank the world’s biggest pension funds, and where they are located.
What is a Pension Fund?
A pension fund is a fund that is designed to provide retirement income. This ranking covers four different types:
- Sovereign funds: Funds controlled directly by the state. This ranking only includes sovereign funds that are established by national authorities.
- Public sector funds: Funds that cover public sector workers, such as government employees and teachers, in provincial or state sponsored plans.
- Private independent funds: Funds controlled by private sector organizations that are authorized to manage pension plans from different employers.
- Corporate funds: Funds that cover workers in company sponsored pension plans.
Among the largest funds, public sector funds are the most common.
The Largest Pension Funds, Ranked
Here are the top 100 pension funds, organized from largest to smallest.
|1||Government Pension Investment Fund||🇯🇵 Japan||$1.7T|
|2||Government Pension Fund||🇳🇴 Norway||$1.4T|
|3||National Pension||🇰🇷 South Korea||$798.0B|
|4||Federal Retirement Thrift||🇺🇸 U.S.||$774.2B|
|6||California Public Employees||🇺🇸 U.S.||$496.8B|
|7||Canada Pension||🇨🇦 Canada||$426.7B|
|8||National Social Security||🇨🇳 China||$406.8B|
|9||Central Provident Fund||🇸🇬 Singapore||$375.0B|
|11||California State Teachers||🇺🇸 U.S.||$313.9B|
|12||New York State Common||🇺🇸 U.S.||$267.8B|
|13||New York City Retirement||🇺🇸 U.S.||$266.7B|
|14||Local Government Officials||🇯🇵 Japan||$248.6B|
|15||Employees Provident Fund||🇲🇾 Malaysia||$242.6B|
|16||Florida State Board||🇺🇸 U.S.||$213.8B|
|17||Texas Teachers||🇺🇸 U.S.||$196.7B|
|18||Ontario Teachers||🇨🇦 Canada||$191.1B|
|19||National Wealth Fund||🇷🇺 Russia||$180.7B|
|21||Labor Pension Fund||🇹🇼 Taiwan||$168.9B|
|22||Washington State Board||🇺🇸 U.S.||$161.5B|
|23||Public Institute for Social Security||🇰🇼 Kuwait||$160.0B|
|25||Wisconsin Investment Board||🇺🇸 U.S.||$147.9B|
|26||Future Fund||🇦🇺 Australia||$147.9B|
|28||Employees' Provident||🇮🇳 India||$145.0B|
|29||New York State Teachers||🇺🇸 U.S.||$144.4B|
|30||North Carolina||🇺🇸 U.S.||$137.1B|
|32||GEPF||🇿🇦 South Africa||$129.1B|
|33||California University||🇺🇸 U.S.||$125.3B|
|34||Bayerische Versorgungskammer||🇩🇪 Germany||$122.0B|
|35||Ohio Public Employees||🇺🇸 U.S.||$121.6B|
|37||Public Service Pension Plan||🇨🇦 Canada||$117.9B|
|38||National Federation of Mutual Aid||🇯🇵 Japan||$117.1B|
|39||Metaal/tech. Bedrijven||🇳🇱 Netherlands||$115.8B|
|41||Universities Superannuation||🇬🇧 UK||$111.2B|
|42||Virginia Retirement||🇺🇸 U.S.||$110.0B|
|43||Pension Fund Association||🇯🇵 Japan||$109.8B|
|44||Raytheon Technologies||🇺🇸 U.S.||$108.9B|
|45||Michigan Retirement||🇺🇸 U.S.||$108.0B|
|46||Aware Super||🇦🇺 Australia||$107.5B|
|47||New Jersey||🇺🇸 U.S.||$104.5B|
|48||Minnesota State Board||🇺🇸 U.S.||$102.9B|
|49||PFA Pension||🇩🇰 Denmark||$102.7B|
|51||Georgia Teachers||🇺🇸 U.S.||$100.9B|
|52||Oregon Public Employees||🇺🇸 U.S.||$100.4B|
|53||Massachusetts PRIM||🇺🇸 U.S.||$98.5B|
|55||General Motors||🇺🇸 U.S.||$96.1B|
|56||Ontario Municipal Employees||🇨🇦 Canada||$95.7B|
|57||Ohio State Teachers||🇺🇸 U.S.||$95.1B|
|58||AP Fonden 7||🇸🇪 Sweden||$94.4B|
|59||Healthcare of Ontario||🇨🇦 Canada||$90.5B|
|60||General Electric||🇺🇸 U.S.||$90.5B|
|61||Employees' Pension Fund||🇮🇳 India||$89.5B|
|64||United Nations Joint Staff||🇺🇸 U.S.||$86.2B|
|65||Lockheed Martin||🇺🇸 U.S.||$85.7B|
|66||Quebec Pension||🇨🇦 Canada||$81.4B|
|67||National Public Service||🇯🇵 Japan||$79.9B|
|68||Tennessee Consolidated||🇺🇸 U.S.||$79.0B|
|69||Royal Bank of Scotland Group||🇬🇧 UK||$78.3B|
|70||Bank of America||🇺🇸 U.S.||$76.3B|
|71||BT Group||🇬🇧 UK||$74.3B|
|75||Los Angeles County Employees||🇺🇸 U.S.||$72.7B|
|76||Quebec Government & Public||🇨🇦 Canada||$72.4B|
|78||Northrop Grumman||🇺🇸 U.S.||$72.0B|
|79||Pennsylvania School Employees||🇺🇸 U.S.||$70.4B|
|80||Lloyds Banking Group||🇬🇧 UK||$69.7B|
|82||Colorado Employees||🇺🇸 U.S.||$68.6B|
|83||Maryland State Retirement||🇺🇸 U.S.||$68.5B|
|84||AMF Pension||🇸🇪 Sweden||$67.3B|
|86||Wells Fargo||🇺🇸 U.S.||$66.0B|
|89||Illinois Teachers||🇺🇸 U.S.||$64.0B|
|90||J.P. Morgan Chase||🇺🇸 U.S.||$62.8B|
|91||Electricity Supply Pension||🇬🇧 UK||$62.5B|
|93||Nevada Public Employees||🇺🇸 U.S.||$58.8B|
|94||B.C. Municipal||🇨🇦 Canada||$58.7B|
|95||AP Fonden 4||🇸🇪 Sweden||$57.7B|
|96||Missouri Schools & Education||🇺🇸 U.S.||$57.0B|
|97||AP Fonden 3||🇸🇪 Sweden||$55.9B|
|98||Social Insurance Funds||🇻🇳 Vietnam||$55.7B|
|99||Organization for Workers||🇯🇵 Japan||$55.6B|
|100||Illinois Municipal||🇺🇸 U.S.||$54.9B|
U.S. fund data are as of Sep. 30, 2021, and non-U.S. fund data are as of Dec. 31, 2021. There are some exceptions as noted in the graphic footnotes.
Japan’s Government Pension Investment Fund (GPIF) is the largest in the ranking for the 21st year in a row. For a time, the fund was the largest holder of domestic stocks in Japan, though the Bank of Japan has since taken that title. Given its enormous size, investors closely follow the GPIF’s actions. For instance, the fund made headlines for deciding to start investing in startups, because the move could entice other pensions to make similar investments.
America is home to 47 funds on the list, including the largest public sector fund: the Thrift Savings Plan (TSP), overseen by the Federal Retirement Thrift Investment Board. Because of its large financial influence, both political parties have been accused of using it as a political tool. Democrats have pushed to divest assets in fossil fuel companies, while Republicans have proposed blocking investment in Chinese-owned companies.
Russia’s National Wealth Fund comes in at number 19 on the list. The fund is designed to support the public pension system and help balance the budget as needed. With Russia’s economy facing difficulties amid the Russia-Ukraine conflict, the government has also used it as a rainy day fund. For instance, Russia has set aside $23 billion from the fund to replace foreign aircraft with domestic models, because Western sanctions have made it difficult to source replacement parts for foreign planes.
The Future of Pension Funds
The biggest pension funds can have a large influence in the market because of their size. Of course, they are also responsible for providing retirement income to millions of people. Pension funds face a variety of challenges in order to reach their goals:
- Geopolitical conflict creates volatility and uncertainty
- High inflation and low interest rates (relative to long-term averages) limit return potential
- Aging populations mean more withdrawals and less fund contributions
Some pension funds are turning to alternative assets, such as private equity, in pursuit of more diversification and higher returns. Of course, these investments can also carry more risk.
Ontario Teachers’ Pension Plan, number 18 on the list, invested $95 million in the now-bankrupt cryptocurrency exchange FTX. The plan made the investment through its venture growth platform, to “gain small-scale exposure to an emerging area in the financial technology sector.”
In this case, the investment’s failure is expected to have a minimal impact given it only made up 0.05% of the plan’s net assets. However, it does highlight the challenges pension funds face to generate sufficient returns in a variety of macroeconomic environments.
Visualized: FTX’s Leaked Balance Sheet
As Sam Bankman-Fried’s crypto exchange FTX files for bankruptcy, this graphic visualizes FTX’s balance sheet leaked by the Financial Times.
Visualizing FTX’s Balance Sheet Before Bankruptcy
In a difficult year for the crypto space that has been full of hacks, failing funds, and decentralized stablecoins going to zero, nothing has compared to FTX and Sam Bankman-Fried’s (SBF) rapid implosion.
After an astronomical rise in the crypto space over the past three years, crypto exchange FTX and its founder and CEO SBF have come crashing back down to earth, largely unraveled by their misuse of customer funds and illicit relationship with trading firm Alameda Research.
This graphic visualizes FTX’s leaked balance sheet dated to November 10th, and published by the Financial Times on November 12th. The spreadsheet shows nearly $9 billion in liabilities and not nearly enough illiquid cryptocurrency assets to cover the hole.
How did FTX wind up in this position?
How FTX’s Bankruptcy Unfolded
FTX’s eventual bankruptcy was sparked by a report on November 2nd by CoinDesk citing Alameda Research’s balance sheet. The article reported Alameda’s assets to be $14.6 billion, including $3.66 billion worth of unlocked FTT and $2.16 billion of FTT collateral.
With more than one-third of Alameda’s assets tied up in FTX’s exchange token FTT (including loans backed by the token), eyebrows were raised among the crypto community.
Four days later on November 6th, Alameda Research’s CEO, Caroline Ellison, and Sam Bankman-Fried addressed the CoinDesk story as unfounded rumors. However, on the same day, Binance CEO Changpeng Zhao (CZ) announced that Binance had decided to liquidate all remaining FTT on their books, kicking off a -7.6% decline in the FTT token on the day.
Back and Forth with Binance’s CZ
While Ellison publicly offered to buy CZ’s FTT directly “over the counter” to avoid further price declines and SBF claimed in a now-deleted tweet that “FTX is fine. Assets are fine.”, FTX users were withdrawing their funds from the exchange.
The next day, the acquisition fell apart as Binance cited corporate due diligence, leaving SBF to face a multi-directional liquidity crunch of users withdrawing funds and rapidly declining token prices that made up large amounts of FTX and Alameda’s assets and collateral for loans.
FTX’s Liabilities and Largely Illiquid Assets
In the final days before declaring bankruptcy, FTX CEO Sam Bankman-Fried attempted a final fundraising in order restore stability while billions in user funds were being withdrawn from his exchange.
The balance sheet he sent around to prospective investors was leaked by the Financial Times, and reveals the exchange had nearly $9 billion in liabilities while only having just over $1 billion in liquid assets. Alongside the liquid assets were $5.4 billion in assets labeled as “less liquid” and $3.2 billion labeled as “illiquid”.
When examining the assets listed, FTX’s accounting appears to be poorly done at best, and fraudulently deceptive at worst.
Of those “less liquid” assets, many of the largest sums were in assets like FTX’s own exchange token and cryptocurrencies of the Solana ecosystem, which were heavily supported by FTX and Sam Bankman-Fried. On top of this, for many of these coins the liquidity simply wouldn’t have been there if FTX had attempted to redeem these cryptocurrencies for U.S. dollars or stablecoin equivalents.
While the liquid and less liquid assets on the balance sheet amounted to $6.3 billion (still not enough to equal the $8.9 billion in liabilities), many of these “less liquid” assets may as well have been completely illiquid.
Relationship with Alameda Research
When looking at FTX’s financials in isolation, it’s impossible to understand how one of crypto’s largest exchanges ended up with such a lopsided and illiquid balance sheet. Many of the still unfolding details lie in the exchange’s relationship with SBF’s previous venture that he founded, trading firm Alameda Research.
Founded by SBF in 2017, Alameda Research primarily operated as a delta-neutral (a term that describes trading strategies like market making and arbitrage that attempt to avoid taking directional risk) trading firm. In the summer of 2021, SBF stepped down from Alameda Research to focus on FTX, however his influence and connection with the firm was still deeply ingrained.
A report from the Wall Street Journal cites how Alameda was able to amass crypto tokens ahead of their announced public FTX listings, which were often catalysts in price surges. Alongside this, a Reuters story has revealed how SBF secretly moved $10 billion in funds to Alameda, using a bookkeeping “back door” to avoid internal scrutiny at FTX.
While SBF responded to the Reuters story by saying they “had confusing internal labeling and misread it,” there are few doubts that this murky relationship between Alameda Research and FTX was a fatal one for the former billionaire’s empire.
Personal Finance7 days ago
Ranked: The Best Countries to Retire In
Demographics4 weeks ago
Ranked: Gen Z’s Favorite Brands, Compared with Older Generations
Technology3 weeks ago
The Shrinking Trillion Dollar Market Cap Club
Markets2 weeks ago
Visualized: FTX’s Leaked Balance Sheet
Technology1 week ago
Visualizing the World’s Top Social Media and Messaging Apps
Politics4 weeks ago
Visualized: The Biggest Donors of the 2022 U.S. Midterm Elections
Misc3 weeks ago
Visualizing the Evolution of Vision and the Eye
Money3 weeks ago
The U.S. and China Account for Half the World’s Household Wealth