Part 7/9:
The Role of Institutional Investors and Liquidity Risks
Institutional investors, particularly pension funds and endowments, may find themselves in a liquidity trap if the AI bubble deflates sharply. These large investors rely on their assets being liquid enough to meet withdrawal and payout demands. If asset values plummet and they cannot quickly convert assets into cash—especially real estate or other illiquid investments—they could face a severe liquidity crisis.
Such a scenario would impact millions of retirees and public sector employees depending on steady pension payments. The interconnectedness and high correlation of AI-driven assets exacerbate this risk, making financial systems more vulnerable to rapid shocks.