Transcription
Um, so thanks everybody for coming. Thanks a ton, uh, to Stripe for hosting us today. Um, we're lucky to be here with, I think, um, a true business legend, Henry Kravis. Um, Henry co-founded KKR in 1976 with his partners with $120,000 of his, of their own money. Uh, since then, KKR has scaled into one of the largest private equity firms in the world. It has over a hundred billion dollar market cap as a public company itself and, um, has over $670 billion in assets under management. Um, which basically means they're involved with some of the world's most interesting and important companies at real scale. And so, if you think of the impact of that, it's truly enormous. Um, Henry was one of the first to pioneer the private equity industry, uh, with the insight to create value by purchasing companies using, uh, borrowed capital and operationally improving them, which is really key. And, um, he and KKR are often credited with the rise of PE, or private equity, as an asset class. Beyond investing, you've also been involved with quite a bit of philanthropy, and I think we'll touch upon that a little bit as well. Um, education, the arts, um, you serve as a chairman of the director for the Partnership for New York City, Mount Sinai Hospital. You're involved with Sponsors for Educational Opportunity and many other, um, causes in terms of giving back. And so, I think he's both contributed to the business world, uh, but also to the worlds of education, healthcare, philanthropy, etc., over time. So, thank you so much for joining us today.
>> Eliot.
Thank you for having me. Uh, happy to be here. And I guess you all didn't have anything to do, uh, better than come here, but thank you. Appreciate it.
>> Yeah, it's funny. I told him, um, just in this front row, uh, alone, there's like a ton of amazing founders, and he's like, "Oh, they must be really bored tonight." And I was like, "No, no, no, no. You know, these people usually don't don't come out just for anything."
Um, so, uh, you started KKR in, uh, 1976, uh, using your and your partner's initial, uh, own money or capital. Can you tell us a little bit more about how you got started? Why did you start this really interesting new type of business, and what, what motivated you?
>> Well, we got started actually in what is now known as the alternative investment area. Uh, while we were at Bear Stearns, uh, we were Jerry Colberg, George Roberts, and I were at Bear Stearns, um, and bought our first company really in, uh, 1969, I believe. And, um, it sort of came about because, uh, a man came to see Jerry, who he knew, and said, "I got a problem." And the problem is, uh, I've got a private company called Stern Metals, made dental equipment, and I don't want to go public. I don't want to sell the business. And by the way, I have a son who I don't think's capable of running the business. What do I do?" And, uh, Jerry came up with the thought, "Well, why don't we form a group to, uh, to buy the company? You keep 25%, we'll buy 75%." And, uh, "We'll take care of your son so you don't have to have that burden." And that was the first deal we did. That was in 1969. Uh, we bought a number of companies in the '60s through Bear Stearns. Now, you have to understand, Bear Stearns never put a penny into any deal we did. They hated what we did. They were a sales and trading firm, and for them, uh, long-term was overnight. Uh, for us, 5 to 10 years was was long-term, and that's really what we, uh, what we wanted.
Um, we left the, uh, left the firm in 1976, and, uh, George and I were 32. We didn't have any money, and Jerry was older. Uh, each, George and I, first cousins, we each put up $10,000 to start KKR, and Jerry, being 19 years older, put up $100,000. So, we started with $120,000, went out to raise a $25 million fund. You got to understand, there were no, uh, funds in that, in those days. Nobody doing what we were doing, and, uh, we couldn't raise money on terms that made sense. Uh, the, we dealt with a credential insurance company, Mass Mutual. But our idea was, we saw a, a, a discrepancy in the market for companies, and that was, uh, boards of directors were not holding managements accountable. Institutions weren't doing much either, except owning the stock. And companies were in, in the 1970s and the early '80s, were really poorly run. And we felt that we could buy companies and if you tie in management and make them an owner, as opposed to, I call it a renter of the corporate asset, actually make them an owner, they're going to act differently, and they're going to have the same interest in mind that, uh, that, uh, the shareholders have in mind. So, you have to have an alignment of interest between management and, um, uh, and, and the shareholders. And our idea, Eliot, was, uh, we thought we could buy companies and, um, uh, make them better, and that was our whole premise when we got, when we got started, and that's what we've done.
But, um, when we got started, uh, you could buy a company, uh, maybe seven, eight times earnings. Today, you're paying 15, 20 times earnings or more. Um, so, and in those days, I'll give you an example. A company you all will know is Safeway. So, in 1985, we bought Safeway for $5.6 billion. We put up, uh, $126 million out of the $5.6 billion, and that was for 100% of the equity. And that was called leverage. You had $5.4, $4 billion, or $5.5 billion in round numbers of debt and $126 million of equity. At one point, we actually made, uh, on a sale we made in the public markets, we had taken it private, then took it back public. Uh, we actually, um, made, uh, about 50 times our money. Those are venture kind of returns. Now, what did we do when we bought the company? Everybody said, "You guys are crazy. You can't buy a retail company. You got 1% margins. There's not much you can do with a company like that." Well, we found a terrific management team, which was actually the team that was part of our consulting group within KKR. We had our own consulting group in KKR. They went in to run the company. They took margins from 1% to 9%. And for a grocery store chain, it's incredible. Probably too high, quite frankly, but they knew where to spend the money. And of course, there was no AI in those days. And so, um, that you could lever a company to, just to put it in perspective. So today, if you buy a company, I don't care how hard you work at it, you still have to pay probably 15 times earnings for the company on average. You might be able to get, uh, the equity, uh, or debt, let's say seven times, uh, debt to EBITDA. So the rest of it, you're going to have to put in in equity. So what went from $126 million today, you would have to put in probably $3 billion of equity. So that has really changed from where we were.
Now, why did we get started? First of all, we saw this discrepancy in the market, and we really believe that we could make companies much better, and that's, that's been our premise all along. But I want to back up for a minute because something very important. Um, when Jerry, George, and I, uh, had our very first meeting as KKR, May 1st, 1976, we had two conversations. First conversation was how to divide the economics. That was a 35-second conversation. Jerry, you take 40%, you're putting up $100,000, and George, and I take 30. And, uh, when we hire anybody else and give them equity, the first 10 points will come from you, Jerry, until we're even, and we'll come down after. That was easy. The second part was just as easy. We came out of an environment at Bear Stearns which was an "eat what you kill" culture, and we hated it. Everybody ran around and said, "My idea, my deal." I literally, no kidding, had to lock, uh, my desk drawer at night, even though I was a partner at the firm, because I found people would come and rummage around, see what I was working on, because you were only paid on what you worked on or what you did. We hated that. So, uh, we wanted a firm exactly the opposite. We wanted a firm where everybody participated in everything we did. Whether you're a partner at the firm or you were not a partner, whether you worked on a deal, you didn't work on it, whether you brought it in or you didn't bring it, didn't matter. And the reason was very simple: because if we got the best thought process from the entire firm to help us, we thought we would do much better. So 49 and a half years later, we have exactly the same culture, except rather than having three of us, we now have 5,000 employees and 28 offices around the world. And, you know, not a, not $120,000, but but over $700 billion of assets under management, 45 different products. So, got started really because we had an idea and there was nobody doing it, uh, that we could make companies better.
Yeah, I, I think, um, one of the things that you've talked about a lot, and I think is reflected in what you just said, in terms of how you both quickly divided up equity amongst yourselves, how you thought about compensating early employees, how you thought about culture, is you've always had a really keen eye and focus on talent. And there's almost two types of talent in your business. I'm extrapolating. You know, one is the management that you'll help bring on board or hire or get to reinvest in a company. The other is talent for KKR itself. How do you think about the key attributes of what you look for in employees for KKR? And how has that changed over time, or what is a new thing that got added, or something that got dropped?
>> Well, first of all, I'm going to start with the premise, and I don't know whether you all would agree with it or not, but I really believe very strongly in this, that I don't think you can be a great investor if you're not curious. And I'm not talking about curious just about your business, but curious about a lot of things. Curious about history, curious about the arts, uh, literature, you name it, whatever it is. And I think that's very important. So, what we're looking for are people that, uh, have that kind of talent in them that they really, uh, because we're only as good. We, we don't have a product. All we have is a lot of ideas and, and, and I think investing capability. But if you're not curious, so if I took somebody, any one of you, to the window of, at my office on the 77th floor at 30 Hudson Yards, and I said to you, "What do you see out there?" "Oh God, it's a trick question. Let's see. Oh, yeah, I see the tugboat in the Hudson River." I said, "You failed." I want you to be able to see everything. You have to see the entire landscape because you got to connect the dots. You got to see possibility. Ah, there's a vacant lot over here. I can go build a building. Whatever it is. And so, what we're looking for are people that, uh, are willing to take risk. And, and I think that's one of the hardest things for young people that are investing, uh, today to do. I've, um, we get all the best and the brightest from different schools, and they are, they struggle, uh, to pull the trigger. They want, uh, you know, they used to come in with a 50-page memo, and it would tell you how many blue trucks in the business and so forth. It didn't matter a damn thing about the blue trucks. What I want to do is, how are you going to make this company better? How do you create value out of the investment we're making? And if you can't do that in sort of four or five pages, probably don't understand the business very well. But all I can think about, and maybe I'm wrong about this, and that is that they're taught in school today, uh, to be able to answer every question. So when they come out, they got to be, they come into the investment committee, they want to make sure that they can answer every question. I, I'm waiting for the day for somebody to say, "Look, I don't know the answer to that, and quite frankly, I don't think it's that important." That to me would be great. But I won't tell you what I can do with a business once you buy it. I said, "Think about this. You, you run a model. You're running his models." So I'll say to him, "How much money do you have?" He said, "Well, what do you mean?" And I said, "Well, I want to bet you every penny of your net worth that your model's wrong." I'm sure they're thinking, "It can't be. I went to Stanford, you know. It can't be. How could that be wrong?" So they're, uh, I said, "I'll tell you why it's going to be wrong. We're either going to be higher than what you say the returns are going to be, or it's going to be lower. There's so many things we do. We're not just buying a stock. We're buying a company. So once you get control of a company, just think about all the things you can do. We can develop new products. We can go into new markets. We can sell a, a non-core subsidiary. It's not doing return capital back to, uh, we can refinance the company and get, there's lots of ways to get returns. And models that are run in the private equity world are static models. You go from point A to point B. I've never seen a model which, uh, had a downturn. Everything just goes straight up, you know. That's not life, you know. But that's how the model works. So, you run a static model, and, uh, I wish that, uh, you know, that you think more like a, you're the conductor. You're the conductor of, uh, or director of a movie. What do you want the movie to be? Where do you want it to go? How do you want this company to, to be? You're in charge now. You can do whatever you want with it. We didn't just buy stock. You now control the company. You control the board. You make the decisions. How do you want the company to go, and in which direction? That to me is what, how we think at KKR. And we act and think like industrialists. And I'm using industrialists in a broad sense today. Eliot, it takes so much more to, uh, be successful in investing, uh, in a company. Used to be very simple. Companies were so poorly run. Today, they're much, uh, more efficient, much more, uh, capital efficient, etc., and better run than they were. So today, we have, uh, over 100-person operating group within KKR that are part of KKR. We have a 43-person macro and asset allocation group. We've got something called, uh, the KKR Global Institute, headed by General David Petraeus, to focus on regulation, to focus on, uh, geopolitical issues as we invest all over the world. Uh, we've got a, uh, a very large ESG team that focuses on because regulations, environment, uh, government, uh, situations all play an impact today on investing, uh, if you're going to, going to buy a company. Uh, we've got a capital markets team today, which we never had before, because we do the financing ourselves. So the question is, how do you refinance a business once you have it? What's the right capital structure for it? And it used to be that our teams worked on the deal, they would do the financing, too. That's a waste of time. So, we have a capital markets team that the debt and the equity, uh, placement, and we go from there. So, the, the world has changed as far as, uh, as far as investing. So, what we're looking for are people willing to take risk. Um, people who are innovative, people who are curious. And, uh, I want people to tell me the mistakes they've made. If, if you ask me what are the mistakes you made, we'd be here all night because I can tell you every mistake that we have made, and most of them were just stupid mistakes on our part. We went into industries we shouldn't have. We're going in the auto parts business in Japan. Uh, and, and, and bought Fiat's auto parts business and then doubled down buying, uh, uh, uh, uh, Nissan's business. And so, you know, that was a mistake. What Toys "R" Us, didn't change the management fast enough. What am I looking for? Also, I'm looking for people that aren't afraid to make management changes. One of the things I can almost assure you is that, uh, what you see in an executive is what you're going to get. I'll repeat that because it's really important. People don't change. You know, you can fix them around the edges, particularly if it's a CEO of a company. And, uh, I'll tell you a quick story. In 1978, we bought a company called Lily Tulip, and they made paper plates and cups. McDonald's was the largest customer, and we bought that company. And in the first year, the management didn't even come close that we inherited with the company. Didn't come close to meeting, uh, the budget. Okay. I said, "You got to do better." Second, went through two more quarters, not much better. And I said, "I'm going to have to let you go." And he said, "You can't let me go." And I said, "Why is that?" He said, "Because you're going to lose the McDonald's account." So, I was young, and I thought, well, geez, you know, maybe he's right. So, I let him go one more quarter. I said, "I've had enough. I'm, I'm going to bite the bullet." I let him go. I called the head of purchasing at McDonald's. And I said, uh, "We've just let this guy go, and I hope you'll still do business with us." And he laughed. He said, "First of all, we do business with the company, not with any one person. And by the way, the only thing I liked about that guy was that he used to take me hunting every year." And that was, that was a lesson for me because now I promise you, what you see is what you get. And, and I, if, if you look back, if I look back and say mistakes I made, I didn't move fast enough. And I asked that question often times to CEOs of major companies. And I said, "Do you agree with me?" And I've never found a CEO yet that has disagreed with that, with that statement. He said, "Most of them will tell me, 'I'm sorry I didn't do it faster with people I had in my company that I should have moved out.'"
>> One of the best anecdotes, um, I've had recently where I was talking to a founder about people not changing was, um, we were talking about employee happiness and how do you cause it and all these things, and he said, "Well, you know, the number one way to have happy employees." And I said, "What?" And he said, "Hire happy people." And I thought that was actually a real good insight because if you think about it in other aspects of life, who your partner is dating, whatever, you're like, "Oh yeah, I'm not going to try and change somebody." And a happy person. So why would you do that in the context of an employee? And to your point, I think there's a lot of other traits like that that, um, are things that people are at the job with, and they either build on those and get better, or they're not going to change. And so I think that's a really great insight. So, just to continue on with what we're looking for, we go through an interview process, and we're probably for hiring people at KKR because we have this culture of, uh, inclusion where everybody participates in everything we do. And even today, it's exactly the same culture we started 49-plus years ago. And so, when we're hiring senior people, we want to take them out for dinner because it's funny, if you get people away from just across a conference table, and after they've had a glass or two of wine, and they relax, watch them. What do they say? How, how do they treat the waiter or waitress? How do they treat their partner they're with, etc.? These are things we're looking for. Do they talk about themselves all the time? If somebody, if I'm interviewing for a CEO for one of our companies, and, and they come in and all I hear for an hour is, "I, I, I, I did this, I did that." Whoa, whoa, stop. Did you have a team? None. Nobody. I don't care who you are, can do it by yourself. And you all know that. But I have, I can't tell you how many times people come in and they're trying to impress you, and they only talk about themselves. And that's a big mistake.
>> Absolutely. One thing you talked about is, um, the degree to which the industry has been changing over time since you helped really pioneer it, um, at this point almost 50 years ago. And, you know, you mentioned changes in terms of operational efficiency of the companies and excellence there. Obviously, there's been changes in scale of this business in terms of private equity and, you know, the size of, uh, rollups or buyouts that people have done over time. What do you think is coming in the next 10 or 15 years in the industry, or how do you think it changes, or do you view it as more static now?
>> Well, first of all, that people keep talking about as the private equity industry. It's, it's, it's not private equity anymore, or only that. Today, just take KKR today. We've got over 45 products. We're global, uh, 28 offices. And if you go back when we started, uh, there were only maybe four or five banks that would lend on a cash flow basis, and that was First Chicago, Continental Illinois, Bankers Trust, and Manufacturers Hanover. Now, probably most of you never heard of those banks because they're all gone now. But that, but that's all there were. And you had to go to the credential insurance company or Mass Mutual, Connecticut General, uh, and one or two other insurance companies. And the way that we would, uh, put the structure together, and literally George and I would have to back into a capital structure, how much capital was available in each of those pots. Today, there's money everywhere. So, in those days, you, if you didn't, if the deal was halfway large, and you didn't get the credential, you couldn't get the deal done. There was no high-yield market. High-yield market didn't come into effect until the mid-'80s. So, and that was Mike Milken's doing. It was brilliant. And so that really changed the, the market, uh, totally. And so, what, what, uh, has, I say, don't talk about the, uh, private equity industry, talk about the alternative investment industry, because like I say, we've got 45 products at KKR. They range all the way from credit products, uh, private equity, growth equity. Uh, we don't do venture capital at KKR. Uh, but we've got, uh, uh, we have real estate, we've got, uh, an insurance company, Global Atlantic, that does, uh, life and annuity business. We have, uh, infrastructure investing. And we have a capital markets business. We have a climate fund. We have a, an impact fund, and so forth. So, I wouldn't call those just private equity. They're, they, they fit into the alternative investment, uh, area. So, the things that have really changed, it takes a village today to, to, uh, uh, in, in, uh, Hillary Clinton's parliament, to, to buy a company. Used to be simple. George and I just go and buy a company. It used to be literally, uh, I, we bought Beatrice Foods for $8.6 billion. And I just, I had called, uh, the the banker, and I said, "Do you think that they would sell the company?" Because I just saw they fired the CEO, and George and I have been chasing this company, and the guy wouldn't even talk to us. And when they fired him, uh, and he said, "Well, I don't know. I don't think so." He said, "By the way, if you have anything to say, uh, send us a letter." So, I called my secretary and dictated a letter, no lawyers, nothing. Sent it out to them, and the next thing I know, I get a call back and said, "This interim CEO and I'll come see you." And we bought the company. That's pretty simple, straightforward. Um, today, everything's an auction, or most things are auctions today. Uh, you've got to, you've got to go through all sorts of regulatory issues, which is totally different than what we used to have to do. Um, when there's money everywhere today, there's probably not a bank in the world today that hasn't lent to, uh, to some, uh, alternative investment, uh, that has come in to them. It used to be, as I said, there were four banks. That has changed dramatically. The high-yield market changed dramatically. It used to be just, uh, Drexel Burnham. Then it became everybody on Wall Street was doing that. The banks all do it today. And so, there's plenty of capital. There's more competition than there's ever been today. Um, and you just have to be smarter and pick your spots. Where can I make a company better, in, in our view?
We have a lot of, um, founders, CEOs, builders, engineers in the audience here today. And one of the, uh, sort of trends that's happening right now, at least in Silicon Valley, is more and more people are getting excited about doing rollups, but in the context of a deeper application of AI or software or technology as part of that shift in terms of the margin structure or leverage on the business. How do you think about that, or what do you think is important in addition, if you are trying to do an AI-driven rollup, like how should you think about that, or what other factors should you consider?
>> You know, George and I have had an unbelievable partnership. We ran it together, ran KKR together for 45 years, and finally, we got a promotion, uh, up to executive chair, co-executive chair, which is great. Um, I said I'd go buy one company and I'd use it as a vehicle. And I said I wouldn't go out and raise a fund. You know, the world needs another fund like a hole in the head, and I don't care what kind of fund, whether it's a venture fund or private equity fund. I mean, there's a fund for everything today. So, uh, I would personally, I would have bought one company and I'd use it as a rollup vehicle, and, and I would, uh, find, as, uh, you know, the best CEO I could find. Now, I, I'm in, I'm in AI land out here. I got it. Understand, uh, you know, everything's going to be autonomous. Everything's going to be, uh, run by, uh, by AI and so forth. And I, I talked to a lot of people that are now doing rollups, and they're putting AI in. I think that's great, except there's a couple things you have to add. You better have good management because AI is not going to run the company. That's, that's a productivity improvement. Absolutely. Without a doubt. And we put them in our, put AI in our companies, and it does improve productivity without a doubt. Uh, you can improve your margins without a doubt, but you got to have a corporate development guy because he's got to go find the companies. You better find companies where, um, uh, the cultures fit, because I've seen more companies that say, "I can just go buy companies," and they start buying all these companies, and the cultures, uh, have a collision, and they don't fit, and the companies blow up. I've seen, uh, situations where, uh, you buy all these companies and you don't integrate them. So you're not getting the benefit of buying the other companies. You just, you buy them, and yeah, you've gotten bigger, but you haven't become more efficient or more profitable because you never integrated. You got to figure out how to integrate. So, you know, being, um, uh, you know, doing rollups and using AI, that's just a tool, and it's not going to, you can't have AI run the business. You have to have a really good management team that's going to run the business and use AI as a component of how you run the business and how you run it more efficiently. Uh, and the idea is, if I can buy all these at a, say, a six multiple, six times EBITDA, and once I have size, and it looks like I'm really growing quite fast, then, then I can, I'll trade it 12 or 15 times. The problem today that arbitrage is closing because companies, uh, are waking up and say, "Whoa, I'm not going to sell my company at six when I look at comparables in the whole business are trading at 15." So, you don't have the same arbitrage that you used to have in, in a lot of these rollups. And so, you know, as I say, uh, AI is great in, in these rollups, important, but you still, you better run the company. And most importantly, you better have a culture that that fits, because you don't have a culture in these companies, I promise you, you can have all the AI you want, and it won't work because you're going to have the management blow up.
One thing you've mentioned a few times is your, um, cousin George, with whom you've, uh, started this business and who you've had a decades-long partnership with. What do you view as the key to having a sustainable partnership over such a long time period, or how did, how did you navigate that, and what advice would you give to people as they look at their own co-founders or people?
>> George Roberts is my closest friend, my, and, uh, we were cousins, first cousins, and we met when we were two. So, people ask us, said, "You two must really fight a lot." He said, "Yeah, that's, that's true." I think the last fight we had, we both were seven. I got a new bicycle, and I was in Tulsa, and he came up from Houston, and I wanted to, it was a Christmas, and I wanted to ride my new bicycle first, and I was told I was a bad host, and I got chased in the house by the housekeeper, and I ran in the corner of a wall, cracked my head open, had 26 stitches. That's the last fight we've had. So, um, first of all, um, we've been close friends. Went to Claremont together. Uh, spent summers together, drove cross-country from Claremont, uh, to New York. He worked at Bear Stearns in the summers, and I worked at Goldman Sachs. Uh, and, um, uh, you know, if you have the same values, you, and you have the same objectives, um, it's amazing how far you go. And if you don't worry about who gets credit, I'm pulling for him, and he's pulling for me, and that's how we've made this work. Now, uh, about three years ago, George and I moved up from from co-CEO to co-executive chair. And, um, we brought on two fantastic guys that had been at the firm for 25 years. Joe Bay, who had started Asia for us, and Scott Nuttle, who had started our credit business and our capital markets business and, and some other things. And, um, they were really close friends. Uh, and that, uh, changeover, uh, literally took us seven years. George and I started thinking about it seven years before we finally, and we started with seven people, and we moved them around, and we narrowed them down to three, and we had a choice. You pick one, you're going to lose the other two. You pick two, you're going to lose one. So, and you got to pick two that are really close. So, one of the most important things that we thought about when we, um, were, uh, passing the mantle was, one, and most important, number one, do they believe in our culture? They live our culture, and they do. Secondly, how close are they? Well, they're really close. They came into the firm within a month of each other, been there 25 years when we made them chief operating officers first, which they were for four and a half years before we promoted them to co-CEO. And, um, and so, uh, George and I, uh, today, uh, it, it's pretty simple. I seem like I'm busier today than I was before, but, uh, I'm doing more things that I enjoy doing. And so, um, and we work very closely with Joe and Scott, and we meet, uh, basically every two weeks, uh, officially. Our offices are right next to each other. George is out here in California, but Joe, Scott, and I are in New York on the same floor, and just down the hall from each other, and we're in each other's office all the time. So, if you don't worry, and you really are doing the best for what, what's best for the company, you can, you can really, as I've said, you can go a long way.
So, I think we're going to move to a lightning round now, and then, uh, just two or three questions for that, and then we'll open up to questions in the audience. Um, I guess the first one is, if you could have dinner with anyone, who would it be?
>> That's easy. I, I'd have dinner with my wife. I know that's not what you're looking for, but I'm telling you that's true. My wife's brilliant, so I love having dinner with her.
>> It's actually interesting. So, I met Henry through his wife originally, and, um, this was years ago, and the number one thing that people would say when they described her was that she's very smart. And so, every conversation I ever had was, "You have to meet this person. She's incredibly smart. She's incredibly talented." And so, um, I definitely understand your answer.
Um, so, if you could go back and talk to, you know, 32-year-old Henry Kravis, um, just as you were leaving Bear Stearns, starting KKR, what advice would you give yourself, uh, or give him, uh, given what you know now?
>> Look, you know, I've always been a risk-taker, you know, for right or wrong. In fact, you know, I had no money. I had three children. Um, uh, George, the same, three children, uh, no money, uh, when we started KKR, and we could, we went out to raise a $25 million fund and couldn't raise it on terms that made sense for us. So there we were. Well, you all are entrepreneurs in this audience, and, uh, you're either going to get through the wall or over the wall, but you're going to get to the other side. And that was how we were. We're entrepreneurs, and except we're just old entrepreneurs now who've been doing it for so long. And so, uh, the, the thing was, we said, "Okay, how much money do we need to, to run the business?" And we sort of held our finger in the air and said, "Okay, $500,000." So, let's go to eight individuals and ask them to put $50,000 each. That's $400,000. And we said, "If we buy a company, uh, we'll get a fee, and that'll be the other, uh, $100,000 that will, uh, cover our overhead." And all we wanted to do is get set up so that we could survive for five years. And, uh, we said, "We've got to get going because we have no job, no money, and three children." And so that's not a great position to be in. And so, um, I look back and I say, "Okay, what was it that, uh, that I would do differently?" I said, the only thing I'd probably do differently was I, I'd move on people faster, which I talked about earlier. That's, that's the one thing that I've, that I wish we had learned very early on.
>> Okay. And then, uh, last question before we open it up is, what do you think is the best advice you've ever been given?
>> Best advice? Well, let me, let me, I'm, I'm going to reframe it, if I may. I'd say the best opportunity I've ever been given, and this is instructional to me. When I, I just graduated from college, and I had worked my first three summers at Goldman Sachs after freshman, sophomore, junior, my senior year. Then I went to work for a fund because I wanted to see how a fund made decisions on buying stock. And I arrived, and Ed Merkle was running the fund, and he said, he used to call me "kid." He said, "Kid," and I was just there for the summer before I went on to get my masters at Columbia, and he said, "Um, I want you to follow these two industries, and I want you to buy stock." And I said, "Well, Mr. Merkle, I've never bought a stock in my life." And he said, "Doesn't matter. We got bumpers here. You're not going to blow us up." And so, he basically just threw me in. And I'm positive a monkey would have done just as well, but everything I suggested we buy went up. Well, the whole market was going up, but he didn't pay attention. I just thought I knew what I was doing. So one day, he comes in, and he says to me, "Uh, kid, I want you to go call on Roy Disney." And I said, "Well, that's not in my group." And he says, "I know, but I want you to go out to California in Los Angeles and meet with Roy." Walt and he had started the business. And Walt died the year before. This is now summer '67. And, and, uh, said, "Who's going with me?" He said, "No one." So, the best advice out of that was he just basically threw me in, and he said, "You're going out there alone." Now, I'm a kid who's just graduated from college. I am scared to death to be sitting with Roy Disney. And I studied everything I could study. I looked at every, uh, annual report, uh, going back, 10-Ks, 10-Qs, footnotes, you name it, research reports. And I got out there, and Roy is said to me, "Thank you for coming." 9 in the morning. Um, I've got an hour for you. And, and Eddie said 15 minutes. That probably would have been fine, too, because I am scared to death to be sitting there. Got halfway into the conversation, and he said to me, "Uh, geez, you know a lot about my business." I didn't tell him I'm scared to death. The reason I knew what I did was because I had to study everything. And he said, "I know I told you I had an hour for you." He said, "I'll tell you what. I want you to spend the day with me." He said, "Most analysts that come out here haven't even asked, uh, uh, haven't even read my annual report. They just expect me to tell them everything." So, the lesson out of that for me was, if you've done your work, um, you can go a long way. He never asked me was I a partner at the Madison Fund, or was I a summer trainee, which I was. Um, all he cared about was that I cared about his company and I'd spent the time to study it. And so, if you, if you do your work, um, and you're prepared, and don't try to cut corners and think you can wing it because you can't wing it, uh, you can go a long way, and, and people will pay attention to you, and they don't care how old you are. And at the end of the day, he took me on a tour of the, of the studio, and I thought I'd died and gone to heaven spending the day with him.
>> That's great advice. Uh, maybe we can open up for, uh, two or three questions from the audience, and I think there's microphones coming. So, is there a microphone or something?
>> When you, when you purchase a business, like what are the, beyond management hires and improving the management team, what are the core kinds of levers that you're targeting? Is there some through line with the types of things that you're focused on for a business?
>> And I'll just repeat the question so when this goes up on YouTube, people can hear it or understand it. So, I guess the question is, when you buy a business, what are the through lines or main points of leverage that you look for in that business?
>> So, one of the things that's very important, where does this company fit in an industry? Is the industry have growth or not, or is the entire industry broken? And if it's sort of number seven, you know, out of 10 companies, probably no interest. But if it's one or two or three, and you can buy it right, that makes sense. You want to find out where it is in the industry. Number two, uh, can, can we make that business better? If, if we're going to buy the company, and the only thing we can count on is hoping that the multiples will increase, that we can actually get a higher exit multiple when we exit or take it public. That's a bad, bad deal. You have to, we have to look at it and say, can we make it better, and how can we make it better? Uh, that's very important. And, and three, I would say, we look at the management. And now, the first thing we do, once we have an agreement, we've signed an agreement, before we even close, uh, we'll start working at a 100-day plan on how to improve the business. And that's where our consulting group comes in, and we, the team that's working on the deal, plus the consulting group called KKR Capstone, will go in and work, uh, with the management. And, and we'll evaluate the management early on, but then you get a better look at them between the time you, uh, uh, sign a deal and you close. So, those are the three things we're really looking for. Uh, you know, and, and can we improve the productivity in a company? And I say, make it better, that's all part of it. Will AI help? That's just part of productivity improvement, etc.
>> Next question, maybe in the middle. Oh, go, please.
>> James.
>> Oh, um, well, you spoke about how KKR doesn't do venture capital investing. But you yourself are very, very prolific, both in funds as well as startups. I'd be very interested in just hearing you speak about that side of your personal investing.
>> So, the, the question is, uh, my personal investing is in venture capital, and KKR doesn't do it, and that, that's true. As I said, because, um, that enabled me to do it. I started doing this in, uh, the dot-com period, 1998 to the '01 period, and I'd come out here to Silicon Valley, and I'd talk to, uh, all these geniuses, and I'd say, "Okay, tell me, uh, what your strategy is." "Oh, that's easy, Mr. Kravis. We're going to go public." Okay, why don't we try that question again? "No, you don't understand, Mr. Kravis. It's all about eyeballs." I said, "So, what do eyeballs do? They're looking at the screen. Does money come out of the screen? I, I don't get it." They had not a clue what to do. All they wanted to do was get rich. And so, the only thing I'll say about that period, I had an airplane that I had owned for 15 years. I paid $21 million, $20 million for it, uh, 15 years earlier. And all these geniuses had to have a plane because if you didn't have a plane, you were nothing. And so, uh, so I sold my plane for $21 million 15 years later. So, yeah, that was then. Fast forward, and I, uh, started investing. And one of the reasons I do it now, I'm, I'm really all-in, but I did it because I'm curious. And, and I love what young companies are doing, what entrepreneurs are doing. Uh, it keeps me fresh in, in my thinking. As I said, I don't think you can be a great investor, and maybe a great manager for that matter, if you're not curious. So, to me, that's just part of my whole curiosity, uh, there. I love, I love learning from, from those companies and those people. And so today, what happened was, about four years ago, the head of my family office said, "Do you know how many of these companies you have?" I said, "I don't have a clue." And he shows me a, I said, "Oh my God, you guys are accountants and lawyers. You're not investors. We better hire somebody who, uh, knows, uh, you know, can oversee the company and, and help us." So I did a search, and I was really fortunate, and I came up with my venture partner now, Jed Lensner, who had eight years' experience at Allen & Company, and then went to Tusk Ventures, and joined me almost four years ago. And he, in turn, has hired two terrific people, Ryan Joseph and Olivia Schmidt. And so, I just
enjoy it. I have I have more fun doing it. Let them do the work and uh I get I get all the pleasure out of it. Other questions? Yes. Right here.
>> In scaling KKR from a few people in a room to a 5,000 person global company, what's been the most challenging skill that you've needed to master as you've led the company to its current scale?
I don't know if you heard that, but the question is uh as we've grown from three people to 5,000 people, what's the most important skill that we've had, uh focus on to uh to master the growth? Um I'd say the most important is culture. That is the number one. If if you don't have a culture and you have people who fit in and live by it, when we made some acquisition for just for KKR itself, not for our funds, like we bought Global Atlantic, which is an insurance uh business and annuity business, we spent more time focused on their culture. Would that mesh with our culture? When we hire people today, particularly senior people, they may have, this will sound strange to you, they may have as many as 20 or 25 interviews. And uh and what we're looking for is uh a consensus of people's not, yeah, I can hire anybody I want, but it but we want people say, "No, this person be great. They would definitely fit in." And and and that that would be important.
So, I'm also looking for people that made mistakes. If you're not making mistakes, you aren't doing anything. You know, number one, uh, as I said, I could give you a chapter and verse about mistakes that I personally have made and that we've made at a firm and, uh, and why we made those mistakes. And so, we're looking for people that that fess up. I want to know one of the things I do if I'm meeting with a with a an institutional investor or a family office. Sometimes I like to start with I said I know you're going to think I'm going to tell you all the great things about Karee. I am. I'll get to that. But I want to tell you the mistakes first. They are so caught off guard by the fact that I would talk about mistakes we've made and we make mistakes. You know, you're human. And fortunately the the record is extremely good. you know, it's picking the right people. Make sure they fit in. Uh these uh interviews are very important to us. And uh and I say the other thing is get people out of their comfort zone. I'll tell you a story. We all can interview across a table. Just not a not not that hard. So, a friend of mine, Tom Cousins, had a company called Cousins Properties, and he had started the company, decided he wanted to move up to become chairman. So, he was interviewing a CEO. I thought he had the guy. He said, "Well, I'll take him to Augusta to play golf." And he invited one of his directors to go with him. And I don't know how many of you play golf in this audience, but when you're on the green, you you put a you can pick the ball up, put a marker behind the ball, behind the ball, and clean it. this guy would uh put a marker in front of the ball, pick it up, clean it, and put the ball in front of the marker. Maybe get that much advantage. And he watched him do it a few times. Now, he would never have seen that in a uh just across a conference table.
So, the thing I would tell you is uh does the person fit your culture? Does the person uh own up to their mistakes? Does the person have uh an innovative bone in their body, you know, to be creative? Because if you're not, you know, it's just you're you're just a machine. And so those are the things that we're looking for. And uh and do they believe in our culture, which is a culture of inclusion? And if if they only want to be, you know, me me and I don't want to go to any meetings. We have guys made us a ton of money. We fired them because they wouldn't go to meetings. that wouldn't help anybody else and they'll ruin a place. Our culture is one of everybody participates in everything. We to this day we pay everybody off the balance sheet and it doesn't matter whether you're based in Sydney, Australia, you're in New York, San Francisco, wherever you are in any one of our businesses, we pay everybody and we're going through that process right now because it's year end.
>> Okay, last question please.
>> One over here I think.
>> First of all, thank you both so much.
>> I can't hear you. I'm sorry.
>> Sorry. I said thank you so much both for being here.
>> Thank you.
>> You mentioned the importance of curiosity and I'm very curious what are some ways that you keep on learning about the world of
>> So the question is uh talking about curiosity what are the ways that I personally uh keep uh keep myself learning uh and learning about the world and so forth. Well number one um I love reading. So, I read history. I read biographies. Number two, I love traveling. I travel all over the world constantly. I'm in I used to be in Asia four times a year. Uh, you know, I'll go anywhere. Uh, because I love meeting people. I love learning about cultures and that's really important in my view. Um, I uh uh philanthropically very involved in three areas. Uh my wife and I are one in cancer care in particular in medicine and science. Uh my wife chairs uh Memorial Song Ketering's research institute. Um I'm very involved with Mount Sinai Hospital in New York. Um that's on that side. Secondly, education. I chair something called sponsors for educational opportunity and I've done that about 12 years now. I love it. These are underserved uh students who uh we can get through high school and college. It's an eight-year program and that keeps me focused on that part which is a very important part of society in my in my uh my view. And the last are the arts. So I'm constantly going to museums. I go to galleries and anytime I'm in New York or travel if I've got time I want to go to a museum because just looking at paintings in my view opens my eye. I like looking at furniture, you know, different design. And so, you know, I used to be the most boring human being. I promise you, when I was young, because when we started KKR, all I want to do is talk about business. I go to a cocktail party, all I want to do is talk about business. And all of a sudden, it hit me in the head, you are boring as hell. You know what? Why anybody want to listen to you? I don't know. And I said, okay, we're going to change. And then I started expanding uh there. And so, um, let's, you know, coming here, you know, you say, why'd you do this? Well, I did it because I met Eli, I don't know, we were trying to figure that out probably about 2015 or 16, something like that. And it was through my wife. Uh, I became fascinated with what Eli was doing. And, uh, by the way, I don't know what you all think, but today's been El's day. I got to tell you, as I was going around, they said, "Oh, we hear you're going to go do this uh fireside chat with Eli." You know, he's one of the best investors in the valley. And you didn't pay me to say that either. I know >> my mother did. So, um >> she's very good to me.
>> So, it's just trying different things. And I' I'd sum it up by telling you, get out of your comfort zone. The worst thing most people, there's one sentence I tell young people to to take out of their vocabulary. I wish I had. Think about it. Don't look back and say, "God, I wish I had tried that." What if you try it and you failed? So what? Live in a great country. Got that ability. Pick yourself up and go try it again. Think about the number of entrepreneurs that failed and tried the second time and got it right or the third time and got it right. you know, get out of your comfort zone and go try things and even if you fail, you're going to learn from it. So,
>> I think that's a wonderful place to end. Thank you, Henry, so much. And uh
>> thank you
>> and a big thank you uh to Stripe as well for hosting us and thanks again.
>> Thank you.