News from Cass Business School

Hedge fund gossip has a bad side effect

Charles Baden-Fuller argues 'spying on the neighbours' can lead to poor investment performance

Many hedge fund managers pride themselves on the valuable morsels of information they are able to prise out of the marketplace.

In this week's Cass Talks Professor Charles Baden-Fuller, Professor of Strategy and Leader of the Strategy Group at Cass, argues that when hedge funds are located more centrally in the network of other hedge funds their risk taking rises and their investor performance declines.

Professor Baden-Fuller says: "Gossip can have a negative value, especially if one takes into account the effort needed to filter the good gossip from the bad. Even more important, those whose organisations have strong ties with other organisations may be deluding themselves that they are important and so immune from the downside of their actions, leading to being cavalier about risk."

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