Performance Art is Killing Actual Performance

I’ve worked in this industry for 25 years at this point. I’ve seen trends come and go, asset classes boom and bust, and countless firms try to differentiate themselves on everything from process to pedigree.

But one trend I’ve seen take hold — especially at the big firms — is something I can’t unsee now that I’ve truly seen it.

So much of the work has become performance art.

Not in the creative sense... in the theatrical sense.

The bigger a firm becomes, the stronger the draw toward "professionalizing" the organization and institutionalizing processes. I liken it to a lake on a par-3 golf hole — the water is like a magnet, sucking your ball into the hazard.

The same is true for performative busyness at investment firms as they scale.

When investment management teams lose the flat, entrepreneurial culture that made them special in the first place, client results start to slip too (at least in my opinion). So, here's what the performance art looks like, and why we think it's killing actual performance for your clients.

The illusion of productivity

I once knew a portfolio team that enjoyed a strong run of performance. When they went back to analyze what was working, they noticed something interesting: During that stretch, their team had submitted more new investment ideas than usual.

So they did what any data-driven team might do... they started tracking idea volume.

How many new ideas were you logging each quarter? How many write-ups were you submitting?

At first, it felt like a natural move. If idea generation seemed correlated to better performance, then surely more ideas meant better performance, right?!

(I bet you can guess what happens next...)

Within a few quarters, the whole system started to shift. Idea count went up, sure... but the quality of those ideas dropped off a cliff. The team wasn’t producing more insight, they were just optimizing for a visible metric. Throwing things at the wall. Flooding the zone.

Conviction dropped. Creativity suffered. Performance declined.

What started as a seemingly illuminating internal signal quickly became the goal itself... and it warped the culture from the inside.

Why big firms fall into this trap

The reason this happens is actually pretty easy to understand (and even to empathize with). Investment firms are measured on performance... as they should be! So how do investment management firms measure the performance of their individual investors?

Enter the disconnect.

In my view, 5-year+ track records are a pretty reliable way to evaluate whether someone is consistently making strong decisions on behalf of their clients. Five years gives you time to smooth out luck, account for cycles, and evaluate both process and outcome.

But most firms don’t have the patience to wait that long. They feel like they're being judged by their clients every month, every quarter, every year, etc. So the bigger firms have to figure out how to measure their people in smaller increments, too.

So what happens next?

Big firms try to reverse-engineer short-term proxies for long-term success. They start tracking anything and everything they think might reflect efficacy and alpha. So, things like research note volume, time spent in office, speed of response to inquiries, idea volume... these become the metrics upon which investors are measured and judged.

Because if the big firms can't wait long enough to accurately evaluate their talent, they can at least measure their activity, right?

But here’s the problem with that: when activity becomes the metric, activity becomes the culture.

For the actual team members, it all becomes a show. A carefully calibrated routine of “looking busy,” “looking engaged,” “looking productive.” The idea is, if you look like you’re working hard, you must be driving results (hence my description of this phenomenon as "performance art").

But in my experience, that kind of performative busyness is hollow; it has very little to do with delivering real outcomes for clients.

I think that draw toward performative busyness is quietly killing performance across the investment industry. Why? Because a culture like that doesn’t attract or retain exceptional investors — it repels them. And if the truly creative, differentiated investors are leaving, so too is your alpha.

Put another way: When firms reward volume over value, their best people eventually burn out or bail out. The people who stick around learn to play the game, sure. But they’re not focused on thinking independently or solving real problems, but rather producing the kind of output their internal system rewards.

And before long, you’ve got a culture that’s excellent at measuring work… but less focused on delivering performance for their clients.

What we do differently

At City Different, we built a different kind of culture on purpose.

We hire grown-ups and treat them like grown-ups. We don’t track internal research note volume. We don’t run endless reports to prove we’re “thinking.” We don’t believe the best ideas are the loudest or the most prolific.

Instead, we emphasize trust, autonomy, agency, and long-term alignment — with each other, and with our clients.

That means fewer layers. More accountability. And a working environment where exceptional investors can focus on doing exceptional work, without performing for a system that doesn’t serve them OR their clients.

We believe that model keeps great people engaged, supported, and — most importantly — effective.

(If you’re interested in how our approach to culture, recruiting and retention shows up in performance data, check out the full video where I lay this all out in detail)

The biggest investment firms get this totally wrong

Creativity and continuity are the names of the game in our industry — thinking differently about a problem or opportunity and capitalizing on it; keeping our best performers on our team, then empowering them with freedom and agency to perform for you and your clients.

But for the big boys, their best investors have a habit of walking out the door… and if the only thing the firm was tracking was who wrote the most research notes last week… don’t be surprised if client performance starts to slip.

Because performance art might look impressive, but actual performance is what your clients are paying for.

Watch the full video

IMPORTANT DISCLOSURES

The information contained in this communication has been designed for general informational, illustrative, and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Moreover, the information provided is not intended to provide any investment advice whatsoever. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.
 
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