Are pension funds too connected?

Over the decades the financial network has evolved into a system that is more complex, more concentrated, more interconnected and has homogeneous financial institutions in terms of investment portfolios and in terms of activities. The combination of all these aspects leads to network fragility. Pension funds are connected to interconnected TBTF institutions through four connections. The connections are: (1) shares of these institutions, (2) bonds of these institutions, (3) bank loans to these institutions and (4) derivative contracts. Through logical reasoning, literature review and expert opinion the conclusion can be drawn that pension funds are susceptible to the effects of Too Big to Fail and Too Connected to Fail. The magnitude of the effects can be small when the initial shock is small, but it can become large when the initial shock is powerful enough to force pension funds to take actions that would hurt the people they invest for.