How total outsider Liddle Mo Lidsky built and sold Prime Quadrant in under 10 years

Objectively, what Mo Lidsky has accomplished at Prime Quadrant is remarkable. Prime Quadrant's big transformation started in 2011.  Until then, the firm had been led by Ian Rosmarin and his junior partner Evan Cooperman.  Evan left in January 2011.  Fortunately, at the same time, a saviour by the name of Mo Lidsky arrived on the scene.  Mo would lead his people out of the bondage of benchmarks and into the Prime Quadrant of recurring monthly fees.  And then Mo would partially divest to a large American wealth management consolidator.  Mo did all this in under 10 years, no time for wandering.   He's still only 38 years old.

"I was born into an unusual sect of Judaism called "poor"" - Gary Gulman

BTW, Liddle Mo is not an allusion to his height, but to his youth and how he came out of nowhere.  Here's that story.  Mo was born in Ukraine and moved with his family as refugees to Cleveland, Ohio.  His mom went from being in charge of green-lighting every bridge construction in the former USSR to working as a cleaning lady.  His computer engineer father became a truck driver.

Mo's business career started at the age of 12 and has included a bewildering array of ventures.  Everything from cutting grass, to vacuuming sofas (as long as he got to keep any change he found...on average, about $1.50), to running a pop-up barbershop.  That last venture, he sold at age 19.  He then moved into auto restoration and other more grown-up businesses.  By around 24 years of age, he had accumulated a nice chunk of change from all this hustling.  Enough to deal with the likes of Goldman Sachs, JP Morgan and UBS to take care of his money.

By then, he had also graduated from Yeshiva University and was a key fundraiser for the institution in Canada.  (Yeshiva is a primarily Jewish institution.  In contrast, Harvard is only 25% Jewish.)  And so, when 2008 came around, he had a lot of his money at stake and was also in charge of the university's Canadian endowment.  Yeshiva's account took a 40% hit.  The crisis also "eviscerated a very significant part of his net worth", by virtue of what he has said was his own "silliness, folly and ignorance". He also had to walk away from a significant amount of real estate.

Up to that point, Mo had been pretty detached from the world of finance and was trusting advisors.  But he was turned off by the fact that advisors, when things are good, pat themselves on the back, but when things are bad, blame the market.  He grew cynical of financial advisors, almost all of whom could be classified as either being in the business of gathering assets or pushing transactions.

The disillusionment that stemmed from this setback set Mo on the path to building the distinctive, independent, objective model he runs today.  Prime Quadrant was the platform that allowed him to do it.  Mo first met Prime Quadrant's founder Ian Rosmarin on the charity circuit.  When the two eventually joined forces in 2011, Prime Quadrant was still small, concerned with managing Ian's money and finding deals.  More fundamentally, it was still stuck with the traditional model of charging based on account size.  Mo started sharing his frustrations with traditional financial advisory models and clients gravitated to his ideas.

Families would join and the firm would grow by word of mouth.  Only a few years removed from his 2008 meltdown, Mo began advising some of the wealthiest people in a country he had just moved to.  That takes a lot of chutzpah.  That's almost an Arnold Schwarzenegger level of accomplishment.  Prime Quadrant has not done any meaningful advertising.  Mo has been the primary sales engine, but he has never made a cold call.   By 2015, the firm was already advising families worth $5b in aggregate.  Ten years after the rebirth of Prime Quadrant, that figure stands at $15b.

Prime Quadrant think of themselves as a McKinsey for family offices.  Of course, as is well known, McKinsey is nowhere near as profitable as Goldman Sachs or Blackstone.  The employees who join Prime Quadrant must really love the fixed fee consultancy model.  Prime Quadrant might extract somewhere around $100k in annual fees from a typical client family with $75m in assets.  In exchange, it must provide the services of its consultants and carry out highly bespoke mandates.  You can see that the model has much less operating leverage than a typical asset gathering firm.

I have to admit my thoughts about Prime Quadrant have "evolved" since I first wrote about them.  I hate when that happens.  I was blinded by the glitz of their clients, but at the end of the day, it's a consultancy.  They charge what is a rounding error in the context of the wealth of their clients.  It takes great commitment to stick to such a model, when practically everyone else in the industry charges fees for proprietary products based on assets.  Mo has taken the trend of fee erosion to its logical conclusion by charging fixed fees.  At last, billionaires can pay less than mere multi-millionaires.  That's because larger family offices have greater in-house capabilities and so less reliance on Prime Quadrant.  Prime Quadrant has clients with assets as low as $20m and as high as $10 billion.

To be frank, I am impressed with the business model Liddle Mo has built.  Some of the value the firm adds is hard to commodify.  For example, currently, you can be worth $100m and still have trouble accessing private equity funds.  They also take "open architecture" seriously and seem to deal in a more sophisticated and exclusive range of products than I initially thought.  Of course, they would still likely be the smallest player at the table, competing for access against the likes of pension funds.  So I don't know how well that works in practice, given the problem of adverse selection.

Perhaps related to the need for heft, in 2019, Mo sold a 35% preferred interest in Prime Quadrant to Focus Financial Partners, an American, publicly-traded serial acquirer of wealth management boutiques.  Focus also owns stakes in three other Canadian firms: Dorchester Wealth Management, Nexus Investment Management, and in July, they acquired Gavin Hockey Wealth Specialists.  Focus is worth about US $4B. Under the Focus model, Prime Quadrant still has substantial autonomy.

Prime Quadrant now has 28 investment professionals and 40+ staff in total. (Prime Quadrant seems a bit top-heavy with a layer of "principals", but if it wasn't clear in my first piece, all their senior consultants are licensed as advisors.)  While other people were busy trying to reinvent the wheel, with hedge funds or robo-advisors, Mo ran with the most obvious principle of the business: go after the whales.  Apparently, the firm's growth is constrained by the challenges of hiring senior staff, not by client demand.  Just like your local bar, these days.  So assuming that your opening move wasn't to write a vitriolic post about them based on cursory research, you can work for them.

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