The Ultimate Investment Club for Entrepreneurs

At CMS, a highly successful but little-known financial services firm, entrepreneurs help each other find the best places to invest.

Mark Solomon is telling a story.

It is a night several years ago, he is saying, and he is driving for hours through an unrelenting rainstorm to visit a prospective client for CMS, the Philadelphia financial services company that he founded in the late 1960s. In the car with Solomon are his deputies: Paul Silberberg, CMS's president, and Bill Landman, CMS's chief investment officer. For a firm that represents the likes of Bernie Marcus, the founder of Home Depot, this prospective client, a man worth hundreds of millions of dollars, would be a nice fit. He would also be an amazingly nice catch.

And yet, there is a problem. The CMS team, soaked from the short walk from the car to this entrepreneur's house, makes a lengthy presentation in the living room. "We look for three things in a client," says Silberberg. "One is a very successful entrepreneur who has built the business. Number two is geographic location--our clients are all within a three-hour plane ride of Philly because we would like to get back for dinner after visiting them, even if it's a late dinner. Third, and probably the most important, is shared values. We look for people whom we like, who are honest, and who are philanthropic. We look for people who really care about more than just creating wealth for themselves and their families, who are trying to use that wealth to help repair the world in some way. And we don't care how--inner city work, save the whales, hug the trees, we just don't care."

This entrepreneur, however, was not the saving, hugging, or repairing kind. As Solomon recalls, he said, "'I've read all your material, and it seems you're extremely philanthropic. You need to know I'm not.' And he was proud of this."

Solomon decided to give it his best shot. "I was going to take a chance on converting him," he says, and he began to regale this man with personal stories about the joys and virtues of philanthropy. Then he launched into a brief tutorial on the Rule of 72. "He didn't know what it was, so I said, if you take the rate of interest you earn and divide it into 72, it tells you how long it takes for you to double your money." Assuming this entrepreneur could earn a steady rate of 6%, Solomon offered some quick back-of-the-envelope calculations, showing that the man would probably be highly placed in the Forbes 400 by the time he was 70. "Do you know how big the hole has to be to bury you and that amount of money?" Solomon asked. "What in God's name are you going to do with it? This guy just looked at me like I was talking in Chinese."

Solomon decided to stand up and announce that he just didn't see how this was going to work for either CMS or the entrepreneur. The CMS execs filed out, piled back in the car, and drove for four hours in the rain, doing their best to keep the car from hydroplaning on the Xooded roads home to Philadelphia.

Even to most entrepreneurs, CMS is a largely unfamiliar name, a firm few know about and even fewer have joined. CMS doesn't exactly seek anonymity, but its obscurity results from the firm's aversion to the media (this is its first real profile) as well as its focus on only the most select (and successful) entrepreneurs. Technically speaking, CMS views itself as an "alternative investment boutique" or "an entrepreneurs' buyers cooperative." Its offices in Philadelphia, where all 100 employees work, comprise two rambling floors of a low-rise brick building on an aggressively unpretentious block. The firm currently has several hundred active clients to whom it offers advice on life insurance, estate planning, and asset allocation. More important, CMS invites those same clients to invest in various funds, generally ranging in size from $30 million to $150 million, that the firm creates at a rate of about four or five per year. Since its inception, the firm and its clients have invested more than $3 billion in real estate and private equity. Every client who invests is an entrepreneur--no corporate executives, entertainers, or idle rich. Every client has been referred by existing clients or someone within CMS's vast network of contacts. And every client has been screened in the same manner as the wealthy-but-ungenerous man Solomon and company visited that night in the driving rain.

Let me explain who our clients are," says Mark Solomon, the founder of CMS. "They tend to be older people who have had a value-realizing event. And the return of their money is more important to them than the return on their money."

All of which suggests some obvious questions: Why doesn't CMS--itself an entrepreneurial, profit-maximizing concern--just sign up every wealthy investor it can find? And why does it focus so much on the criterion of philanthropy? And above all, what can an everyday entrepreneur, someone on the ground floor of building a business, learn from these people in the penthouse? As it turns out, quite a lot. But first, consider the question of why this peculiar firm limits its membership to entrepreneurs. CMS is fundamentally a network of men and women who help themselves, and each other, by helping the firm. In other words, CMS makes money for its clients, and for itself, because it uses its clients' expertise to scout out good investments. When weighing a potential investment, for instance, CMS's in-house analysts may crunch the numbers on a prospective buy and then ask one or two of its entrepreneur/clients with expertise in that area to get on a plane, look things over, and report back. As Bill Landman, the CMS investment chief, puts it: "There's virtually no business we consider buying where we can't call up two or three clients so they can offer insights about the opportunity."

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