PIMCO's Bhansali on Tail Risks

I recently came across this interesting Q&A with Vineer Bhansali who is a Portfolio Manager and Managing Director of PIMCO.  For those of you unfamiliar with the concept of tail risk, as explained in the interview, it is essentially the unpredictable, very low probability events which have a large impact on the value of the portfolio.  Most portfolio managers do not properly understand the tail risks in their portfolios, and therefore do not hedge them appropriately (for evidence, see the recent financial crisis, the ultimate tail event).  Mr. Bhansali describes tail events as "systemic risks in which every investor desires liquidity...but nobody is willing to provide it."  He elaborates that such events "often challenge traditional risk diversification models, because these periods may simultaneously exhibit substantial equity market declines, credit spread widening, increased market volatility and disorderly moves in the currency markets."  The conversation moves on to detail the litany of instruments which can be used to hedge against tail risk, as well as PIMCO's process when approaching tail risk.  Worth a read for anyone interested in risk management.