Performance & Accountability

The two primary demarcations between Owners and Managers are the measurement of performance and the assignment of accountability.

Performance Measurement

This is a natural by-product of the principal-agent problem that forever plagues their relationships. Left to their own devices, Managers may simply exploit the Owners and, if given a chance, take control for themselves. Performance measurement thus enters the picture as a way to monitor their behavior and ensure incentives are aligned.

Owners are under no obligation to maintain performance metrics for themselves, and in most cases they don't. It's their pool, so they set the standard—which may be completely arbitrary, depending on the personality of the Owner.

This freedom, while allowing for a broader, more strategic view of their assets. Owners have the luxury of a long-term view, often considering factors beyond immediate financial returns. They often think about how the pool can survive beyond their lifetimes and into multiple generations after them.

In stark contrast, Managers live in a world dictated by short-term, quantifiable performance metrics. Their success, reputation, and often their livelihood depend on meeting these established benchmarks. In industries like private equity, metrics such as the Internal Rate of Return (IRR) become the yardsticks against which Managers are measured.

This relentless focus on numbers creates a high-pressure environment where every decision can significantly impact their career trajectory. The constant scrutiny builds into a sort of schizophrenic conflict: Owners want both long-term and short-term results, but Managers have no choice but to optimize for the short-term if they want to keep their jobs.

The dynamics between Owners and Managers are further complicated by the alignment, or misalignment, of incentives. Managers, especially those working under fee-based structures like the 2/20 model in private equity, might focus on strategies that inflate short-term performance to secure their fees. That rush towards "right now money" can also lead to blowups if big risks are taken in pursuit of those goals.


The measurement of performance is just a subset of the larger idea of accountability. Owners are accountable only to themselves and whoever else shares an ownership stake in their pool (such as family members and partners). If the pool Owner stands alone, nobody is in a position to hold them accountable for anything they do.

Owners largely try to stay under the radar even if they wield this kind of singular power. It's not in their best interests to draw attention to themselves, especially negative attention, so they tend to keep a low profile. But if they somehow fail to do that, the consequences are bound to be minimal.

Managers, on the other hand, are held to very high standards of accountability. Performance metrics are just one piece of that. They are expected to anticipate problems before they occur, and if a mistake is made it's understood they will take the blame for it. Any attempts to escape from accountability are seen as red flags, which may trigger the removal of a Manager.

Within the larger accountability umbrella, they're also expected to represent themselves and the pool to a certain standard in everything they do. Even if they do their job well, a single public episode of poor behavior can be enough to get them ejected. Owners want to avoid scandal at all costs, so any Manager who carries even a whiff of it around is suspect.

In short, Owners assign accountability but face relatively little of it themselves. Managers live under the constant threat of dismissal specifically because they have so much accountability assigned to them by Owners.

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