“We’re all watching LPL pretty carefully,” says Elliot Weissbluth, “and hopefully its IPO is well received, because it will show health in the IPO market, and health in a business model that we’re, frankly, quite interested in.”
This is clearly not the first time that Weissbluth, the CEO of HighTower Advisors, the Chicago-based RIA that has attracted a number of high-profile wirehouse brokers to its partnership model, has considered the concept of going public. “Going public can help you grow more rapidly, switching from a private currency to a public company,” he notes, pointing out that LPL “is a good business.”
But he also knows enough about the history and DNA of financial services companies to suggest that the process of going public “inexorably changes the fabric of a business, because you’re no longer communicating and managing to private owners.” The process doesn’t mean “you lose the integrity of the business, or your commitment to deliver value to your shareholders or your employees,” but it can change the “risk dynamic” of a company and its management.
On Wall Street, that change wasn’t a good one, Weissbluth (left) argues. Before the major firms on the Street moved from partnership models to publicly traded ones, the partners wouldn’t consider the use of leverage--“the private owners of a business wouldn’t place that business in a situation where they’re leveraging themselves 30 to 40 times"—but as public companies, they did just that, putting at risk their shareholders’ investments.
“These firms had aspirations to be Goldman Sachs, so they competed to get the earnings of Goldman,” he says, but referring to the risks taken and the leverage employed, “I wouldn’t do it with the Weissbluth household, but these firms did.”
Some of the leaders on Wall Street, Weissbluth said, “got disconnected to risk,” and partly since they weren’t the people who built the companies, there developed “a frothy period where the decision makers lost touch with the risk they were taking,” which he calls a “byproduct of chasing earnings expectations.”
Returning to the idea of going public, Weissbluth said that if a company has a strong culture, board, and management, “going public is just another phase of the business.”
The board in particular, he argues, is the “body that can end the CEO’s career and provide pressure on a CEO to perform. If that performance is tied to earnings in a frothy, competitive marketplace—it’s going to have an impact.”
As for HighTower itself, Weissbluth says his firm is now gotten beyond the startup phase and is now an operating business that he proudly reports is “generating operating earnings in its 25th month.” He characterizes the firm as “rapidly growing,” and expects it to continue to do so for at least the next 10 years.