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The Actuary The magazine of the Institute & Faculty of Actuaries

New Centre for Capital Market Dysfunctionality at Imperial College

Dr Paul K Woolley, founder and former chairman of GMO Europe, a fund management firm based in London, is donating £4m to Imperial College’s Tanaka Business School in order to create the Centre for Capital Market Dysfunctionality.

The corporate finance literature has examined extensively how the problems associated with dysfunctionality or social inefficiency in financial markets arise when shareholders delegate decisions to corporate boards of directors. There has been remarkably little research on the similar problems that arise when investors delegate decisions to asset managers. It is commonly assumed that benchmarking managers against average performance generates herding by asset managers, with implications for asset price volatility and the efficiency of the wider economy, but how much do we really understand the behaviour that is induced and the costs that it imposes?

The newly created centre will focus on these and similar issues, analysing why inefficient outcomes arise, the impact that they have on the economy, and how such adverse effects can be mitigated.