The art of investing requires curiosity

KKR has continued to grow for 50 years because we have been willing to change

From the first day when the three of us hung the shingle with our names on it, showing we were open for business, we were ready and willing to take a risk and bet on our idea — and ourselves. Trying is better than not trying. One of our internal phrases borrowed from another is, “We don’t rest on our laurels.”

I’m not saying it came easily or was fast or that we would have said this at the time. It took us 20 years to have the courage to expand into Europe, and even longer into Asia, but we had to look at the market and be willing to take some risks.

I also like this quote from General Eric Shinseki, who served as the Chief of Staff of the U.S. Army starting in 1999. I say this one a lot: “If you dislike change, you’re going to dislike irrelevance even more.” People generally have a hard time leaving their comfort zones. It’s hard to move forward if you aren’t willing to try new things.

In other words, you need to be curious.

I encourage even the newest employees to “find a part of the industrial landscape that no one’s really focused on, and to go focus on that and find companies in that area and pick up the phone and go meet these people. Build relationships. Go find the new idea.

I think this is particularly true and necessary in investing because it is a people business. The environment also changes over time — from geopolitical tensions to micro or macro-economic factors to consumer or demographic shifts, there are a number of things impacting companies every day.

Private equity is our “oldest” business. We are most known for this type of investing — acquiring control of a company for our clients and actively helping manage them and help them go from good companies to great companies. But companies today are different than companies in the ’80s, ’90s or in the last decade. The challenges are different. Technology is different. Supply chains are evolving. Value creation today is very different than in the past.

Twenty-five years ago, we made sure we institutionalized “operational expertise” into our work with companies. This means having an in-house team of experts — people who have run companies or parts of them — who can help our companies on their major growth initiatives. We called this team Capstone, and it still is exists today. Most firms have something similar.

One of the latest additions to this has been how we focus on the workforce and support ownership cultures in our companies. We know it takes much more than a management team to run any business, but we had foolishly never made the connection to motivating the workforce as a part of our overall value creation thesis. Engaging employees was always the job of the management team.

We will always be a workplace that celebrates entrepreneurialism. A partner at KKR, Pete Stavros, was running the U.S. investment team focused on manufacturing investments. He began working with those companies to create broad-based ownership programs where all employees were able to participate if the company performed well. While companies have equity programs, most require that you buy into them. Pete’s idea was to take some of the equity from management, give it to the employees (without any cost to them or without replacing any of their compensation or benefits), create a culture where you share information and financial results and give people a say in part of running the business. It took a decade or so before this idea became a norm at KKR.

To date, KKR portfolio companies have awarded billions of dollars in equity to over 100,000 non-senior management employees across more than 50 portfolio companies.

We were able to start something new, something that became bigger than us, because we were curious and willing to take some risks, including being uncomfortable and making mistakes.