In Conversation with Ken Moelis, Founder and Executive Chairman of Moelis & Company

Well, I think for those who don't know, Drexel was — when I joined it in 1981 — was a job I got because nobody took it. And so I got the job and I decided I was going to prove I could do it. So I ended up staying there. But Drexel rocketed from being basically an unprofitable firm to being the most profitable firm maybe in the history of Wall Street on a margin basis. I mean, it went from zero to two and a half billion of profits or something. Doesn't sound like much today, in five years, but that was a lot. And right after that they ran into troubles, regulatory troubles, and by five years after that they were bankrupt. Valentine's Day 1990, I believe. So look, I think what it taught me — when I started, I was very young. I was 21, and I think it just showed me that hard work matters. I mean, these were — Mike Milken was dominating Wall Street at the time and would get in at 3:00, 4:00 in the morning, and you know, coming out of college where I missed my accounting final because the accounting final was at 1:00 p.m. and I didn't get up in time.

You know, changing to start your day at 4:00 in the morning and work — and that just changed my outlook on what work, what hard work meant. I mean, I just didn't think of it before. And then I think the very formative — and I hope nobody else has to go through this. This is why you can read books and do things without having it happen to you. The decline of Drexel Burnham from the very top, from the place that was on the front page of every magazine and making America go in 1985, to bankrupt by 1990, through a series of mishaps and run-ins with the government, was I think almost a bigger lesson. And it really made an impact on me that look, if there's a line in the sand on regulatory or things that are right or wrong, you stay two feet away from that line. And it's served me well for the next 30, 35 years of my career.

What's interesting you say that — you go like, people with a lot of experience — and I go back, it's 40 years ago. Mike Milken I think was in his mid-30s when I was 21. By the time I was really doing things, 25, he might have been 40. And I think Steve Wynn was not much older. So again, I thought of them as old men because I was 22 or 23, but they were young too. And I think the way you proved yourself — and I wasn't trying to prove anything at the time. It actually was almost the freest time of my life, I think, because I wasn't sure I'd stay in the job. You know, you didn't have anything to protect. There's something very freeing about not having a legacy to protect. You're just starting out. But hard work, try to anticipate what people are going to want, and very few people will do that.

So, if you can become a trusted adviser, if Mike Milken could say two or three sentences to me and then get to this feeling that it's going to happen, whatever he told me to do, you know, I'm not going to forget about it. I'm not going to come up with an excuse as to why it couldn't happen. I'm going to figure it out. Boy, when people are busy and they're trying to accomplish something — same with Steve Wynn. He had a lot of things to do, he was building out Las Vegas — and so people want to be able to rely on you. And I would say, you know, people ask me, you'll ask me about success, but being reliable and getting things done is paramount.

It's very freeing. Everybody you're talking to doesn't see you change. I see a lot of people who literally change. All right, I know you're nervous doing this interview and I would say to you, don't change. Just be you. And you know, you're worried about are you going to be able to perform something that an interviewer would do. Well, I don't give a damn about that and neither should you. You should just be — and then it takes it all away because you're not pretending anymore. You're going to succeed by exactly who you are, not by being a pretend person. And I will tell you, you can't pretend your whole life. So you better succeed being yourself. And by the way, when I say that, I always say to people the best image of yourself — you know, you can be yourself, but you can be the best part of yourself.

It's a very basic thing, but doing it in practice can be quite difficult.

I think third, because I've read it again since then. So I think I've done it four times, but I think third.

That's — it's a very good question and I think that I was more worried about being wrong by staying put. You know, there's 100% — I knew that staying put was wrong, so I didn't have to worry about whether action was wrong. You know, and by the way, I think — I hate to say it — you know, reading Atlas for the third time helped me. It's a book of very — people call them very two-dimensional, you know, characters who are either very heroic or not heroic. But I was in the middle of a heroic part of it and I realized that I'm not doing what I want to do. So I think your question is — I knew if I stayed it was wrong and that my reputation would decline and my relationship with my clients would decline because I was not living true to myself. So it wasn't, hey, if I do this will I fail. It was, if I stay put I will fail. I will fail in the definition that I set forward — not financially, but morally and reputationally in my relationships really with my clients.

Well, two things happened. One, when I started it — right after I started it, by the way, the crisis hit, the global financial crisis. So some of the giants you were talking about were pretty wounded. So I'm not sure I ever really did have to go up against the full giant. I mean, you know, you had Lehman Brothers go out of business. You know, you had half the industry just get chopped at the knees. But it actually — look, first of all, the idea to start it was my relationships with bankers themselves, by the way. So I didn't think I'd go and start Moelis and Company because I'd be able to do one big deal. There's a lot of bankers who do that. They go, hey, I got two big deals, let me go do them on my own. I decided that I might be a good deal doer, but I think what's unique about my career has been how many quality people have chosen to work with me and stayed with me and were loyal to me. So, and I saw that as the asset — the ability to attract great people.

Now, this idea of battling big firms — remember, in the world of corporate M&A and decision-making, it's judgment that counts. The difference between — and I'm just going to pick, you know, Bank of America's loan and Citibank's loan and JP Morgan's loan, you know, if you're really good, might be an eighth of a point. That's not going to make or break your life. By the way, everybody wants to save the eighth, but it's not going to make or break your career. Doing a bad M&A deal, that is devastating. You can lose your company, you can lose your job, you can lose your fortune if you're an entrepreneur. So judgment counts and you can't replace it. And that's how you win. That's how you win these transactions — is CEOs are going into a battle and the future of their career and their business is on the line. And it'd be like if you walked in a hospital, you know, and you're having a heart attack. You don't ask who's the cheapest doctor. You don't ask who's the biggest hospital. You go, who can save my life? Who can fix my heart now? Now, I'm just saying those are the questions you ask. And I'm not comparing the two careers, but I will say that decision at that point in time is not who's the biggest.

The real question is, what's your time frame for success in a business? So I've always had kind of an infinite time frame. As I've gotten older, I realize that I'm not actually going to live to infinity. I used to not just assume that, but now I guess it's becoming clear that might not happen. But I always had an infinite time frame, and the most important asset in that time frame — and it will be for all of you — is your reputation. It's really your reputation, because when I say relationships, look, you don't have a relationship without a reputation. I mean, you don't have a quality relationship, let's put it that way. And so one leads to the other. Relationships are the most important thing in the business world, in any business, by the way. I would guess almost in any business. But that also comes from your reputation, your dependability, your reliability. And so therefore this idea that you can accelerate your career by telling somebody to do a deal that doesn't work — no, you can make an extra fee.

By the way, there are a lot of bankers, and I'll say this, who, you know, you're given a lot of information when you're in the deal world. And so the first thing they do is go to the next client and they start talking about things they just talked about with their old client. Now, that's very interesting to this person and they will act very friendly to you because you're telling them gossip, but they will never tell you anything else and you'll destroy your reputation. I've seen it over and over with young bankers think that's really good — this person wants to see me because I have that kind of info. Well, that's the quickest way to destroy your career. You get a meeting and you will destroy your career. Same with your best judgment. And so never — you know, you never try to — you just do the best you can. You're not always right. And then the last thing you have to remember, it's not your company. Look, I am an adviser. And there have been transactions where at the end I would have said don't do that or do do that. But really, I'm the adviser, not the principal. I get to do that with my own company. That's been fun. But all I can do is give my best advice. And then you got to support. And then you got to turn around and support your client.

Well, it's judgment. I'll tell you a story because the IPO — it happened the week that Russia invaded Crimea, I think 2014. So we went into the week with a very hot book, high end of the range. I think the range was 24 to 26. And in the middle of the week, it got a little less — like it was not as good a market. And on the final, the underwriter was telling me, I think we're going to have to do this at 25. We're still trying to get 26, but we don't have it. And I land at 4:00 and they say — a good friend of mine, he's always been a very long holder and a relationship investor. He said he'd prefer the deal at 25, but he's not going to miss Ken Moelis' IPO for a dollar. I said, I'll call you right back. And I called and I said, I'm so happy you're in the deal. And I just want you to know you're making me price this deal at 25. At $25, it's going to come. So he goes, 'I didn't say that. I said I would do it at 26.' I said, 'I know you did. And that's why I'm not going to stick you with a bad deal because you were willing to come at 26 because I'm a friend and you really didn't want to do it, so I'm not going to do it.' And he just hung up the phone. He said, 'That's why I invested in you, Ken.' That was his only comment. He goes, 'That's why we're in.' So again, it's just like a judgment. What do you want to accomplish? What's your long-term goal? So I thought it was the beginning of Moelis and Company. And what do you do at the beginning? I think you gather your friends, you gather forces because you're going into a hell of a fight and a hell of a competition. And I think that was my thought process — is gather your forces. And your shareholders are a major force in that battle.

And the quality of the stock and how it traded and how, you know, we've always had over 50% of our stock held by 10 large institutions. They feel like they're partners in the business. They feel like they could call me up. But — and they don't even do it. They say, you know, Ken's told us what the game plan is. He's executing on it. So there's a lot of trust in that. And to get where we are today, maybe that one decision was key. I don't know. I can't tell you, but at the time it felt like the right thing to do.

Yeah, I try very hard to keep it — it's clients, clients, clients, external, external, focus on what we're doing to improve our clients' lives. And the internal stuff, try to make it as minimalist as possible. And that's why, you know, if you look at our financials, we have no debt. We just — we've tried to make the action of being at Moelis and Company very conducive to being confident that you can leave the office and go visit your client and think solely of your client for two, three, four hours, however long you're with them. You don't have to worry like, are we going to fat-finger? I don't know if you remember, but then you know these fat-finger trades where you lose a billion dollars because somebody hit the button with the wrong finger or — you know, we don't have any of that and it's fantastic. So yes, I'm not saying I have this culture like that I could give you 10 slides on, but I know what it is. I want people to 100% feel like the firm has their back. We're taking care of their family and their career and — and don't worry about us. Worry about the person on the other side of the phone. And because if you do that, everything else works 100%.

Well, I have said that. You know, we used to go to a place here and I could tell — family — I could tell when the owner wasn't there. I mean, I can't tell you exactly what I noticed, but if the owner wasn't there, it was different. And if you think about all the great restaurants in the world, you know, it's the owner is there. The owner is the chef or the owner's there. And it's just different. And that's why we pay a lot of our employees — we try to get the stock in their hands. They've made a lot of money by being in the stock. We want them to think like owners, be owners. It's — you know, I forgot about the restaurant analogy, but you're right. I noticed it right away. You could tell if the owner's in the house.

Yeah, well, when we were starting, actually, that was a big deal because I had to hire from scratch almost, you know, everybody. Now, I did have 50 or 60 people come over from — that I knew. And by — anybody who's starting anything, I would tell you, you know, it's very hard, especially if you go into a, you know, maybe a little tech thing, which is more getting the code right or something. But, you know, we were in a business where I had to have — as I said, if we were moving forward, I had to have just, you know, you need people around you. It was very important that we had 10 or 20 people that were bound to each other. Now, then we had to go hire. In the beginning, because I started it, I was 48. I was very much in the deal flow. I would hire either people that I knew from being on my side of the table, but the other way was to hire people who you met on the — who were on the other side and you go, you know, so every once in a while you go, 'Oh, that person really did a great job. They out-negotiated me. They stole my client. They're — you know, I've seen how they've acted.' And so I would say it was a perfect time to start the business because at 48 I was right in the mix of — you know, right now I'm 20 years older and I don't interact with everybody on the deal flow. So I have to rely now on those people to hire their peers, which we do. But at the time I sort of felt like I knew who I wanted to hire — either on my side, who I had been on the side of the table, or I knew was worthy from being on the other side and, you know, their character a little bit too.

Well, you know, I'm not — people around me say I'm an optimist. I don't feel like an optimist. I want to tell the group here one thing I learned that you were asking me if being executive chairman has taken that away. I just want to give you — because I wish somebody would have told me this a long time ago. But look, I think it was Ayn Rand who said, you know, check your premises. If something is contradictory, check your premises — one of them is wrong. Meaning you have premises in life about what's about to happen, and if it doesn't work that way, then check why you thought it — which has been great. And you asked me like what premise I've struggled with. I think I felt — and Wharton was part of this — I've always been very rational. 1 plus 1 does equal 2. I know there's been a lot of stuff on the internet whether 1 plus 1 actually equals 2, you know, and there are facts in life right now that I think are facts and people are debating whether they're facts. I'm going to stay away from getting into political, social commentary, but I'm like — I'm very much so. I think the premise that I've learned, which is very disappointing but I've learned to live with it, is that — and by the way, I think if you can avoid it, it's a good thing to avoid — is that most people want to belong and get along more than they want to be correct about something. What's the new thing? You just move along to fit in with a crowd, and most people will give up a rational conclusion and rational thinking will forego that to get along with a crowd. And it's a great opportunity for everybody, by the way, because 90% of the people you meet will be much more interested in being accepted than being right. And it's tough to be right when everybody else disagrees with you and you still might be right, but you'll be treated like you are wrong.

It's funny, when I started Moelis and Company — about 10 years ago — I started Moelis 20 years ago, but about 10 years ago, I went to Blackstone to meet with Steve Schwarzman and the executive committee. And Steve opens up by introducing me to the executive committee. He goes, 'Oh, this is Ken Moelis who's built a fabulous business.' And he said, 'Even though everybody in New York thought he was going bankrupt.' I'm about to speak and I look at him, I go, 'Steve, everybody thought I was going to go bankrupt?' He goes, 'Oh yeah, everybody would tell me Ken Moelis' band is too cliquey and he's going to go bust and it'll never work.' And I said, 'Really? I never heard that.' He goes, 'Well, that's why you're a good entrepreneur — you never even heard it.' And again, this idea of just being able to stand — you know, get out. I didn't actually hear it. And I don't know if that's — I'm deaf or whatever, but this idea of being able to withstand not being in a herd — and it's difficult. I know everybody there is going, 'Yeah, I could do that.' Yeah, let's see. It's very hard. Ayn Rand called it a first-hander. If you've never read The Fountainhead, it's a great book. And she comes up with this term called a second-hander.

And a second-hander is somebody who gets all their ideas secondhand. Derivatives. Like, I have a feeling. Why do you feel that way? Well, the New York Times told me to. Why do you feel that way? Because my professor told me to. Why do you feel — why do you believe that? And the main character of that book is a first-hander, is a primary, somebody who actually fundamentally comes to conclusions and makes the world tick. I don't know if that's compl — but if you can do that, and I think it would be — it's very difficult and there'll be times when you're very lonely, but it'll work well over a long period of time.

Yeah. Well, you know, look, everything's a difficult position. Look, nobody — it's funny. I came to that conclusion 30, 40 years ago. I thought everybody — again, everybody looking at this said, 'Oh, Ken Moelis, everything worked well for him. It all was easy.' I can't tell you how many times I had complete catastrophe, disaster, and feeling that the world — you know, that it was not there's and —

And most of the time, and you know, you can even read — I was talking about Steve Schwarzman, read his book. He had cataclysmic opportunities for Blackstone to not work in the early days. And it'll happen. So you'll be in difficult positions. So I will say yes, if I were one of the reasons, I would encourage everybody, even early in their career, I think going to an investment bank and doing the internship-type program. Look, whenever a doctor comes out of medical school, they put him in a hospital because it's triage that you see — you know, the flu victim, the bullet, the this, the that. You know, you get to see everything and you get a real overview of the world. I feel like banking, you know, is a wonderful place like that where you get restructurings and financings and M&A, and you get to see how smart people look at different things. I'm a big fan of it. I think it does a lot.

And the other thing I would tell everybody is read a lot. Um, you know, it will look having to do difficult things. Yes, you have to do them, but sometimes you can read about difficult things and you can avoid them and still have the experience and knowledge of what happens during difficult times. So I've spent a lot of my life reading. I read, you know, the best fiction in the world is valuable because the Tolstoys and the Victor Hugos of the world will tell you about human nature in a way that even a biography can't or an on-ramp.

But, you know, I read a lot of history because that does repeat itself over and over. Things that happened will happen again. Uh, they happen in business. And so, look, I do encourage that. I do think you can make a lot of mistakes, but if you can read about them and internalize them as if you did actually face them, you can, you know, you can multiply the amount of experiences you've had without having to absorb all the difficulties.

Yeah, look, it's, you know, the reason Victor Hugo is one of my favorite authors and Tolstoy is because they have mass — why are they so popular? Somehow they've captured in fiction the essence of human nature.

And so you don't have to go and, you know, actually fight in the Napoleonic War to find out — you can read War and Peace. You don't have to march 500 miles in the snow. You know, I wouldn't recommend that. But if you read the book, you'll sort of get the feeling of what went wrong and go like, okay, I get it. Maybe I won't, maybe I won't, you know, put a siege on Moscow. You know, whatever the equivalent of that is in your life. But it will reflect on you, and if you do it right, uh, it'll stop you from having to experience, you know, dramatic problems.