Private Equity Tycoon Reveals How He Turned His Company into a $90 Billion Business

Bundles of cash.

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Everybody loves a good story about the American Dream, and this one’s pretty big. In a recent interview with Institutional Investor, American financier Henry Kravis gave the inside scoop on how he built one of the biggest private equity firms in the world.

It all started in 1976, when Henry Kravis and his cousin, George Roberts, decided to start their own investment company. Both men were 32 years old at the time. With limited financial resources, they each invested $10,000 into the company. Their partner, Jerome Kohlberg, was about 20 years older and was able to put $100,000 into the company.

Their strategy was to build a company with a unique workplace culture. Both Kravis and Roberts had worked for global investment bank Bear Stearns in the past, which Kravis described as being an “eat what you kill” environment. Kravis and his partners decided very early on that they didn’t want that type of culture, so they set out to design a company that was centered on active involvement and collaboration.

“We set a firm up that everyone would participate in everything we did, and that way we got everybody to work together. And today, 40 years later, that’s the same kind of culture that we have,” Kravis stated.

Being the optimists that they are, Kravis and his partners set an extremely high goal for themselves: raise $25 million. But they soon figured out that they couldn’t raise $25 million on terms that were acceptable to them. So they decided to regroup and set the bar a little lower: raise $500,000 to cover overhead costs.

“And so we said, ‘okay. Let’s go out to have a group of individuals that will put up $50,000 each for a commitment for five years, and if they put that kind of money up, we’ll show them every deal we do. They can come in or not come into the deal, but if they come in, we want 20% of the profits.’”

And that’s how KKR was born. Kravis says that to this day, neither he, Roberts, or Kohlberg have needed to put another penny into the company. With just $120,000, the three of them built the second largest private equity firm in the world, managing a total of more than $90 billion in assets.

Ideal Backgrounds for a Career in Private Equity

A computer generated image of colorful finance terms written in every direction.

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There is no standard way of entering the private equity industry, but there are certain characteristics firms look for in an ideal candidate.

While private equity firms want people who are technically proficient, there are other important factors they consider as well. Success in private equity is related to having the ability to source deals, the ability to focus, industry knowledge, communication skills, and a strong work ethic.

Private equity continues to be an attractive career path for both recent graduates and experienced financial veterans. Firms are very selective about who and when they hire, typically taking on just a few new people each year.

If you’re determined to join the private equity industry, here’s what you need:

Educational background
The private equity industry is very selective when it comes to educational backgrounds and will typically target graduates from top universities. Private equity firms have many applicants to evaluate during the recruiting process, so educational background is an easy first screening technique. In addition, the networking aspect of the industry is very important, so your business relationships matter.

Although it’s not required that you’re a finance major, your college degree should demonstrate strong analytical skills.

Private equity firms are also very picky about MBA degrees. Many MBAs in the industry come from Harvard, Wharton, Insead, and Stanford. Alex Crisses, managing director at General Atlantic, is a prime example of this, as he holds a B.S. in economics from The Wharton School of Business and M.B.A. from Harvard Business School.

Professional experience
When entering the private equity field, it’s typical for people to have two to five years of relevant work experience. This includes investment banking, strategic consulting, or corporate development.

It’s unusual for people to enter a private equity firm with just an undergraduate degree because most firms are small businesses that don’t have the time or resources to provide internal training. Although there are some notable exceptions at big equity firms, potential candidates with just an undergraduate degree should have completed several internships in strategy consulting, banking, or at other private equity firms.

Private Equity Leaders and Their Philosophies

The leaders of private equity firms all have a lot of things in common that have helped them to become successful. Despite these similarities, however, they all have a unique take on what it takes to be successful and what the role of a leader exactly is.

To show the breadth of the difference in opinions and professional philosophies, we have gathered videos from several private equity leaders speaking about their leadership styles and business strategies. Check it out!

George R. Roberts

In this video, George R. Roberts of KKR discusses the importance of partnership in business. Roberts stresses the importance of sharing values with those you work and do business with. After all, he says, “people do business with people they like and trust.”

 

David Rubenstein

In this video, David Rubenstein of The Carlyle Group discusses the early part of starting his company and speaks about every person having a specialty at which they are indispensible. Rubenstein also discusses the best way to deploy humor in a business setting. Skip to ~27:00 for this content, though the entire video is a good watch.

 

Stephen Schwarzman

In this video, Stephen Schwarzman of Blackstone talks with the Stanford Graduate School of Business about the importance of hiring phenomenal people. “You don’t do well unless you’re hiring people who are consistent with your values,” Schwarzman says.

 

Larry Fink

In this video, Larry Fink of BlackRock talks about the importance of adaptability and how it intersects with hiring and leadership to achieve long-term business success. “You have to adapt and be harsh, you have to make sure you have the best talent pool,” Fink says. Fink provides examples from his experience at BlackRock.

 

John Reed

In this video, John Reed, formerly of Citigroup, talks about how people are affected by vision in the business world. Reed explains that his vision is a large part of his leadership style. Reed believes his vision attracted people to him and allowed him to maximize his opportunities.

How Much Are Competing Companies Willing to Bid for Wine?

Treasury Wine Estates

IMG: via Treasury Wine Estates

TPG Capital Management and Kohlberg Kravis Roberts (KKR) must really love wine – both private equity firms have made significant bids on Australia’s Treasury Wine Estates.

Treasury Wine Estates, which owns popular wines such as Penfolds and Rothbury Estate, announced on Monday that it had received a bid from TPG Capital, competing with KKR’s $3.2 billion buyout offer. TPG Capital’s bid only matched KKR’s offer of 5.20 Australian dollars ($4.82 a share), so a possible bidding war could be about to ensue! Investors are predicting that one or more of the companies will raise their current bids.

At 10:00pm EDT on Sunday, Treasury Wine Estates was valued at $3.4 billion. Investors were bidding the stock up 2.4 percent, anticipating that the battle will continue.

KKR is a private equity company based out of New York, and was co-founded by Henry R. Kravis and George R. Roberts, who still are active in the company. The company offered $2.8 ($4.70 per share) billion for Treasury Wine in April but was rejected. TPG Capital is based out of Fort Worth, Texas, and was founded by James Coutler, William S. Price III, and David Bonderman. Each firm is a strong contender in the impending bidding war for Treasury Wine.

Maybe these competing companies are gearing up for the holiday season and hoping for some free samples? More likely than that, both companies see a great investment opportunity. Treasury Wine also owns Lindeman’s, Rosemount Estate, and Wolf Blass labels, among over 80 other wine brands. Michael Clarke, a former senior executive at Kraft Foods and Coca-Cola was recently hired as the company’s chief executive. Clarke is hoping to resolve this matter quickly so it isn’t a distraction, a spokesman said.

Who do you think will get this investment?

Richard Sarnoff to Take Over as Head of KKR’s Americas Media and Telecommunications Team

Digital Media

Digital Media IMG: via Shutterstock

Kohlberg Kravis Roberts & Co. (KKR), a private equity company founded in 1976, just announced that Richard Sarnoff will be taking over as head of its Americas media and telecommunications industry team. Sarnoff, a former senior executive at European media conglomerate Bertelsmann SE & Co KGaA, will succeed Alex Navab.

This change in management will allow Navab to focus on his new position as head of KKR’s Americas private equity group. He has been co-leading this group alongside Michael Michelson since 2008, and has had to focus even more energy on this asset since Michelson stepped down from this position in May to focus his efforts on investing at KKR.

Richard Sarnoff will also be a managing director at KKR, the private equity firm said in a memo this week announcing his appointment to its investors. Business insiders are speculating that Sarnoff’s experience working in media firms such as Bertelsmann will allow him to thrive in KKR’s Americas media and telecommunications team.

Bertelsmann is a German multinational mass media corporation that was founded in 1835. It is best know for its book publisher, Random House, which is the largest general-interest trade book publisher in the world. This company has published popular books including Gillian Flynn’s Gone Girls, and Piper Kerman’s Orange is the New Black. Sarnoff left the company in 2011 to work as a senior advisor for KKR and sit on the board of directors of music rights management company BMG, a joint venture between KKR and Bertelsmann.

Sarnoff is credited with leading Bertelsmann’s digital media efforts and orchestrating its acquisition of Random House. Sarnoff’s transition into a more prominent role has been seamless, and he is expected to make a big impact at KKR.

KKR Pumps $1.2 Billion into First Data

First Data

IMG: via First Data

Kohlberg Kravis Roberts & Co has injected $1.2 billion into credit card company First Data. Looking to reduce the interest payments for First Data, KKR also looks to prepare the company for a future public offering.

KKR, with the guidance of CEO Henry R. Kravis, committed to the payment. Of the total amount, $700 million will be funded from its own balance sheets and $500 million will come from its private equity fund that had been set up in 2006.

Said Kravis, “Our original investment thesis was that First Data was the largest credit and debit card company in the world, and that it would continue to grow if we could get the management right.”

The New York-based KKR first acquired First Data back in 2007 for $29 million. At the time, it was one of the world’s biggest leveraged buyout deals. However, since the recession, First Data has been struggling against consumer spending. At the end of the fiscal year in March 2014, First Data had a loss of $732 million, and the majority of its cash flow was absorbed in servicing the net debt of $24 billion.

The capital infusion would lower the annual interest burden of First Data by $375 million. Including the new investment, many believe First Data will account for almost 16% of KKR’s balance sheet investment portfolio. As a private equity firm, KKR often purchases struggling companies, invests in making them more efficient, and sells the improved company off later.

KKR Continues Energy Infrastructure Expansion

Hong Kong

One of KKR’s Asia offices is located in Hong Kong. IMG: via Shutterstock

KKR, the private equity and global investment company founded by Henry Kravis, George Roberts, and Jerome Kohlberg in 1976, is no stranger to the energy and infrastructure sectors. For the past thirty years, the company has invested in global energy opportunities—and it’s not slowing down anytime soon.

Recently, KKR announced that it would be continuing the investment trend by expanding its global energy and infrastructure business in Asia by appointing Tony Schultz and Ash Upadhyaya to lead the charge.

“KKR aims to create a unique offering in the energy, infrastructure and natural resources market, and part of that comes from combining our local geographic knowledge with industry expertise,” said Joe Bae, who heads KKR Asia, and Mark Lipschultz, who is Global Head of Energy & Infrastructure. “We are very pleased to have Tony and Ash leading this effort in Asia.”

Schultz and Upadhyaya will focus their efforts on energy, resources, and infrastructure in Australia and Asia. Their goals will include continue building up the team in Asia Pacific, finding new global metals and mining opportunities, and providing flexibility in capital and solutions, according to Justin Reizes of KKR Australia.

Tony Schultz was formerly Managing Director at Sydney’s EIG. While there, he focused specifically on energy, metals, and mining investments in Asia Pacific—making him very well suited to his new post at KKR. Ash Upadhyaya has been with KKR since 2011, previously working as a Director on KKR’s Energy & Infrastructure team in the U.S. Both men bring a huge amount of knowledge about the sector to their new positions.

Henry Kravis Weighs In On the State of Private Equity

Berlin

This year’s SuperReturn Conference took place in Berlin, Germany. IMG: via Shutterstock

If you are ever in need of professional insights regarding private equity, business leader Henry R. Kravis definitely has the answers you’re looking for. Kravis, the co-founder of private equity firm Kohlberg Kravis and Roberts (KKR), has been at the forefront of national and international finance for some time now, which means he is one of the best resources to help gauge the current pulse of the private equity industry.

Recently, Kravis attended and was a keynote speaker at the SuperReturn Conference in Berlin, an annual private equity and venture capital convention that joins global business leaders. The Conference is instrumental in helping private equity firms like KKR determine strategies, maximize investment returns, and discuss the current trends in finance. At the event, Kravis spoke to attendees about issues like leverage, the current state of affairs at KKR, and how the private equity industry needs to bolster its own reputation.

Untitled-1According to The Wall Street Journal’s “Private Equity Beat,” “Mr. Kravis said that leverage multiples being offered by banks or buyouts in the US had reached seven times earnings before interest, taxes, depreciation and amortization,” of the current state of private equity investments. He also added, “This is not a game of financial engineering,” and more candidly, “That ain’t gonna work,” in regards to how some companies become disproportionately focused on repayments when they are overburdened with debt.

In his speech, Kravis also wanted to make it clear that private equity investments are enjoying success, but that the industry as a whole has not done enough to enhance its own reputation. Kravis himself has put decades into establishing KKR and making it the global leader that it is today. To this end, Kravis mentioned that he is still very much enjoying his work, and has no plans of retiring in the near future.

Read more about Henry R. Kravis and the SuperReturn Conference via The Wall Street Journal.

KKR Executive and Former RNC Chairman Kenneth Mehlman Takes the Helm of PEGCC

PEGCCKenneth Mehlman has a résumé to be envied: he is a former RNC Chairman, ran President G.W. Bush’s successful reelection campaign in 2004, had a successful career as a lawyer, and is a top executive at private equity firm KKR. Additionally, Kenneth Mehlman is a prominent Republican gay rights advocate, working with groups like AFER, Project Right Side, and Marriage for All to fight for equal rights for all.

Recently, Kenneth Mehlman set off on yet another venture that he can add to his résumé: he was elected as the chairman of the Private Equity Growth Capital Council (PEGCC) on Thursday, December 19th, 2013. The group is the “most prominent industry advocacy group” for private equity firms across the country, according to CNBC. It began in 2007 and since then has defended and promoted private equity groups both domestically and globally.

Mehlman takes on the responsibilities of improving the group’s outreach efforts, which aim to educate stakeholders on the value of private equity. These responsibilities will be taken on in addition to his ongoing work as Global Head of Public Affairs for KKR, the director of the American Foundation of Equal Rights (AFER), and the founder of Project Right Side.

“I have enormous respect for the PEGCC’s important work engaging with public policy makers to encourage more economic growth and retirement security for millions of Americans,” he said. “I also share the PEGCC’s goal of building a community of investors who seek superior returns while also emphasizing active, responsible governance, long term investment and measuring success in years, not quarters.”

As the group’s new chairman, Mehlman succeeds Mark Tresnowski and will work alongside CEO Steve Judge, who leads the PEGCC on a daily basis. His focus, according to CNBC, will be to “continue several long-running fights, including higher taxes for PE firms from a potential change in the treatment of carried interest and increased registration and disclosure rules from the Dodd-Frank Act.”

Hillary Clinton is Taking Over Private Equity

Hillary Clinton

IMG: Alan Freed/ Shutterstock.com

Even though Hillary Clinton is no longer the Secretary of State, she is still getting her hours in around the country. This time, it’s in private equity.

Clinton recently spoke at a private equity event in California with about 400 people in attendance. Here she answered questions from KKR co-founder, Henry Kravis on politics, business and more. Last year, KKR partnered with Clinton by creating an infrastructure improvement plan as part of the Clinton Global Initiative.

More recently, Hillary Clinton is scheduled to speak at the private equity firm the Carlyle Group’s investor conference next month. The moderator of the discussion is the group’s founder, David Rubenstein, who is also a Democrat. Two sources familiar with the event confirmed Clinton’s attendance at the September 9th event in Washington.

At these type of events, she generally does a question-and-answer talk, instead of giving a speech.

According to multiple reports, her speaking fee per event is about $200,000. Bill Clinton’s highest paying speaking event after his presidency brought in $750,000 at a the telecom company Ericsson in Hong Kong.

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