Bi-Coastal Plans

Lido tapped Brad Hixson as executive vice president a couple of years ago to help Lido with its acquisition strategy. Hixson worked closely with the firm when he was servicing their business as an institutional rep at Fidelity. “You get to see how different institutions function and how they go about conducting their business. And that’s what really intrigued me about Lido,” Hixson says. “What they did that attracted me was that they started putting in place the pieces and processes to move from a business to an entity. That’s a transaction that takes time.”

Not all firms get there. Growing outside of your current market is difficult. The firm had to develop technology and a cohesive message before looking at fresh blood in Florida or Texas or New York. “I can’t have someone in New York doing business completely differently on different systems than someone in Maryland,” Hixson says. “It’s too unwieldy from a technology standpoint. We spent a good part of 2018 on servicing, segmentation, technology, making sure that we had the package put together.”  

Lido’s Tech Buildout

Lido’s organic growth in the last 10 years has greatly accelerated, and in the last couple of years it has made major investments in compliance, marketing and HR. The firm’s general counsel and chief compliance officer, Jason Lee, worked at the enforcement division of the SEC. After the firm got its infrastructure together, founder Greg Kushner says, it felt ready to start lift-outs and buyouts of small RIAs that couldn’t grow.

In the midst of its other plans, the firm is planning a technology rollout for a new proprietary database it has built to track thousands of mutual funds and pinpoint those whose performance doesn’t track the funds’ underlying investments. President, Jason Ozur is an Excel savant, Kushner says, and when he joined the firm he started analyzing mutual funds. “We came up with this idea of ‘Wouldn’t it be nice if we could kind of predict how our managers are doing on a daily basis to really track style drift?’” Kushner continues.

“What we did is we built a hedge fund of funds strategy using only liquid ’40 Act mutual funds. … So we created this software that would track how each manager should do based on how they had reported—how short they were, what their holdings were. Remember, mutual funds only report quarterly. So we would be able to take that data and use all of our internal algorithms and thoughts and observations to really calculate on a daily basis how a manager should do.”

There were days that certain managers should have been up, say, 0.5% but instead were up 1.5%. “It gives us a flag that says, uh-oh! Something’s changed here. Why did the manager do so much better than they should have? And the same thing in reverse.” Lido would then pick up the phone and talk to the managers. “Maybe they decided they were going to short biotech. And we don’t want to short biotech.”

The software, known as Infinovate, analyzes what the underlying stocks are doing based on third-party inputs such as those from Thomson Reuters, for example, and shows how the client’s asset allocation should perform daily. The firm looks over mutual funds, ETFs and stocks. “It’s creating model portfolios,” Kushner says.

The firm showed the software to some friendly RIAs, captured their interest and is now rolling out its own software program after developing it with a joint venture partner. “Now we’re going to actually take it out to market first of the year,” Kushner says.

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