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Contrary to stereotypes, study of hedge fund managers finds psychopaths make poor investors

07 November 2017

If you’re a psychopath who’s good with numbers, you could make the perfect hedge fund manager.

Your lack of empathy will allow you to capitalise blithely on the financial losses of others, while your ability to stomach high-risk, but potentially high-return, options will send your fund value soaring…. Well, that’s the story that’s been painted by popular media, folk wisdom and Wall Street insiders alike.

The problem, according to a new paper in Personality and Social Psychology Bulletin, is that hedge fund managers with psychopathic tendencies actually make less money for their clients.

Dacher Keltner at the University of California, Berkeley, and his colleagues analysed videos of semi-structured interviews with 101 hedge fund managers, whose firms each managed between US$40 million and US$1 trillion in assets. This money generally came from institutional investors, such as insurance companies and public and private pension funds.

The videos had been recorded between 2005 and 2015 by an investment advisory firm, to act as a marketing tool, and to give existing clients market updates. They followed a set format with the interviewer asking questions like, “What is your outlook on opportunities in the current market?” and “What is your philosophy on risk management?”

Read more on our Research Digest blog.

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