Just as globalization allows investors to ride the growth surges of emerging markets, they also must share in financial catastrophes caused by events halfway around the world, but a recent survey suggests institutional investors are not ready for those contingencies.

It’s not for lack of awareness: Institutional investors are increasingly worried that tail-risk events, like the bursting of a new asset bubble or an oil-price shock, are becoming more frequent due to the globalization of financial markets, according to the third annual Global Risk Monitor Survey.

The study, sponsored by Munich, Germany-based Allianz Global Investors, found that two-thirds (66 percent) of respondents think that tail risk has become an increasing worry since the global financial crisis, but many have not changed their portfolio construction strategies to address the risk.

“The risk of a correction in the markets is growing with valuations continuing to rise, geo-political tensions festering and U.S. monetary policy tightening on the horizon,” says Kristina Hooper, AllianzGI U.S. investment strategist. “In general, institutional investors’ current asset allocations make sense, but the problem is that many of these investors are not incorporating the proper risk management tools to protect these investments from market volatility.”

Tail risk is the chance that a portfolio’s value moves more than three standard deviations from its current price. Under the familiar normal distribution bell curve, there is only a .03 percent chance for such a movement, however, tail risk suggests that the distribution of prices is a skewed ‘fat-tailed’ distribution, implying a greater probability that an investment’s price will move beyond three standard deviations.

In the survey, a majority of respondents relied on traditional strategies to mitigate risk, with 61 percent using asset-class diversification and 56 percent using geographic diversification. Allianz reports that these risk management measures will produce diminishing benefits as markets continue to globalize.

Only 36 percent of the respondents thought they had access to the appropriate tools to deal with tail risk, and just 27 percent make use of strategies to hedge against tail risk.

“The results of this survey reveal an important paradox: While almost two-thirds of institutional investors have become increasingly worried about tail-risk events since the financial crisis, a far smaller proportion are confident that they have access to the appropriate tools or solutions to deal with such events,” says Elizabeth Corley, AllianzGI CEO. “With the anticipation of more frequent tail-risk events, there is an important role for active investment managers in helping clients to understand, classify, measure and ultimately mitigate the downside impact from these outlier events as well as providing opportunities on the upside.”

Institutional investors told researchers that the most likely causes of upcoming tail-risk events are oil-price shocks (28 percent), sovereign default (24 percent), European politics (24 percent), new asset bubbles (24 percent) and a Eurozone recession (21 percent).

Risk concerns may also keep institutional investors from making greater allocations to alternative asset types. Though 73 percent of respondents say they already make broad use of alternatives, 39 percent of the investors said they would increase their alternative asset allocations if they were more confident of their ability to measure or manage risk.

In the survey, 735 institutional investors across North America, Europe and Asia-Pacific drawn from a variety of asset-owning institutions were interviewed survey during the first quarter of 2015.

The study also found that:

• Respondents favored European equities (61 percent) over U.S. equities (44 percent).
• Investors in the Americas and the Asia-Pacific were more likely to name oil price shocks as the cause of the next tail event than investors elsewhere.
• Investors in Europe and the Middle East were more likely to name new asset bubbles and sovereign default as the cause of the next tail event.
• Most institutional investors, 56 percent, believe tail-risk hedging strategies are too expensive.
• Thirty percent of respondents planned to buy European and/or U.S. equities in the next 12 months.

Among respondents, sovereign debt declined in favorability: 29 percent said they will sell sovereign debt and 31 percent believe that the asset class will fail to perform over the next year.