Career & Culture with Jefferies CEO Richard Handler | Global Alts 2023

Very simple. I grew up in northern New Jersey. I'm a New York Giants and Bruce Springsteen fan. It's tough to be a Giants fan right now, but Bruce is touring, so that's pretty good. My mom was a mom, my dad prepared tax returns. We lived in a very normal middle class house. I've got three siblings. I went to University of Rochester because my parents just picked the school and said, 'This was pretty good, why don't you go there?' I'm like, 'Fine.' So I just wound up going there out of pure coincidence, and I wound up loving it. That's pretty much it.

I love the next generations. I think a big part of being at Jefferies, a big part of being involved with education, is really getting the next set of leaders going. The school was very good to me. It prepared me well. I got a great education. I felt like I was prepared for life. I started on Wall Street afterwards, and it's just a great chance to spend time with young people, which I still do today at Jefferies.

Well, first off, I had to sneak in through the back door because they don't really recruit the University of Rochester for First Boston. First Boston was a very white shoe, very prestigious firm at the time. Wasserstein and Perella were M&A. I got there and I was pretty surprised because everyone went to the exact same undergraduate school. It was usually Princeton, Harvard, or Williams. Everyone was white, everyone was male, everyone was very well dressed, and everyone knew they wanted to be an investment banker since they were like eight years old. I looked around the firm and I learned a lot there, and there were a lot of good people there, but I watched the culture and the organization, and they spent their entire time stabbing each other in the back. I'm like, 'My gosh, this is Wall Street? This is kind of a wacky way to build a culture.' But it gave me a perspective of what I wanted to try to do going forward if I ever got a chance to be in a leadership position. Quite frankly, at the time, First Boston, which by the way is coming back to be a new firm, at the time way back in 1983, the Swiss were not happy with the Americans. The Americans were making a lot of money but only keeping it for themselves. There was no ROE. The market cap was about tens and tens of billions of dollars. Now you go through the last 40 years and now they're re-emerging as a firm the size of Jefferies. It's an amazing thing for me to watch the evolution of an organization. I do pay attention to culture. I pay attention to how people are treated. It was a great experience for me, but it was very different from what I expected.

I went to business school at the time because if you wanted to stay in finance, that's what you did. I got into Stanford Business School, and having grown up in northern New Jersey and gone to the University of Rochester, starting to go to Palo Alto was very appealing, so that was a big factor. But also, back then, the quality of the people in my class, the chance to learn from my peers. If you can go to a very high quality school, I definitely recommend it. But it was a very different time than today, and I don't know if I would encourage it as much today.

Well, in the summer of 1986, when I was in between my first and second years, it was the place to be. There was literally an X that marked the center of the financial universe, and everyone wanted to understand what was happening at Drexel. It was an up-and-coming, controversial firm because they were disrupting, before the word 'disruptor' was actually being used, disrupting the financial world. Mike was just remarkable. They didn't take anybody into sales and trading. They only took people into investment banking, so I spent the summer there. We weren't even allowed to go on the trading floor because the trading floor is where the secret sauce was. It was a submarine sealed door. You couldn't go in there. But then what happens after my summer in 1986, November, Boesky Day hit. That was when Ivan Boesky turned state's evidence, and the whole firm was basically shaken to the core. They took one person as an associate from the top 10 business schools. I was the one who was lucky enough at Stanford. Quite frankly, the other nine said, 'We're not going to go back,' because everyone was saying, 'You'll be tainted for life if you go back and work at Drexel.' All the folks at First Boston were telling me that too. I go, 'You know what? I want to just try.' So I asked them to set up an interview with me and Mike. I got a job on the trading floor after a lot of effort, because I think they were desperate to hire somebody. I got there and then I wound up for four years literally seeing Rupert Murdoch, Ted Turner, Steve Wynn, Carl Icahn. You go through the list of who's who of entrepreneurs and mavericks who were changing industries. I watched Drexel basically finance them in partnership. It was an education in four years. A bunch of peers, we were all there together. It was such an exciting and electric and hard-working period of time. It was great for me.

Well, let me just go to Jefferies. On a Friday, we're having a slight liquidity crisis, and on Monday, there's a box at your desk. Pack up. Firm closed. That coincides with my five years at a business school. They asked, 'What's the number one lesson you learned in five years at a business school?' Mine was, of course, there's no such thing as a slight liquidity crisis. The fact of the matter is, that experience was one of the most valuable things that could have ever happened to me. When you see a moment of inflection like that, you see the best in people, you see the worst in people. You know who you can count on. Literally, your world turns upside down. People scatter. You learn how fragile everything in life is. Relationships are fragile, health is fragile, trust is fragile, companies are fragile. Companies one day are there, the next day they're not. I've gone through a lot of ups and downs throughout my career, but that snapshot of time, seeing it firsthand, really helped me put some of the pieces together to navigate when it happened to me. I will say, at Jefferies at the time, all the big firms who said I was going to be tainted if I went to Drexel, all of a sudden they were offering me lots and lots of compensation to go. They decided I wasn't so tainted after all. Jefferies was local. They gave us 30 million dollars worth of risk capital, which was all the risk capital in the firm. By the way, that was a lot of risk capital for a 29-year-old. I couldn't believe they were trusting me with so much money. There was no investment banking, no capital markets, no research, no fixed income. It was just a riskless crossing of stocks in the third market. Jefferies was a platform that allowed us to try to build something from scratch. I always knew there was no one coming to Jefferies who was Mike Milken capable of revolutionizing finance, but I always felt like if I didn't take the chance to try to be entrepreneurial at this point in time, when would I have a chance to do it? So I came over with 30 people, and we started the high-yield trading business from scratch. When I say from scratch, I was working on the liquidation of Drexel during the day, and at night I was copying the holders list of all the high-yield bonds that we had placed, because that was our database that we had to use to try to trade bonds in the secondary market. This was before Bloomberg, before any kind of electronic system. That was our big data, and that's how we started the bond trading business at Jefferies.

I never wanted to become a CEO. There's a couple inflection points. I remember in 1990, we had a holiday party at the end of the year. We brought 32 people over, so with spouses there were 64 people. I realized, looking in the room, they asked me to make a toast. I'm 29. I'm with my wife, who's actually sitting right over there. I'm looking around the room and I'm like, 'Oh my God, these people actually think I know what I'm doing.' They trust me with their kids' education, their mortgage payments. They're actually here. You realize the privilege and sense of responsibility that you get from people trusting you. I came to Jefferies to be an owner. I was offered lots and lots of guaranteed compensation at bigger firms, but I was offered a very small salary at Jefferies with a percentage of what we produce and the right to take most of it in stock and be an owner. I think being an owner is a very important aspect of any type of leadership. Over the course of the 10 years, to get to your question, we were doing incredibly well. We were making a lot of money for ourselves, but the firm wasn't being integrated. It really wasn't standing for anything. Our culture was kind of every man or woman for themselves. Quite honestly, I wanted to be part of building something with partners that I was proud of. Not that they were bad people at Jefferies, but they had a different mentality. So I raised a fund within Jefferies, thinking I'm either going to leave and manage that fund, or I'll convince the senior management team to let me be more effective at leadership at Jefferies. The fact of the matter is, I wound up, I wouldn't say I was selected, I was kind of self-selected. They allowed a transition, and then I was really unprepared. Now I'm thinking, 'Oh my gosh, what the hell am I doing? I'm 39 years old. I'm really underqualified.' Then all of a sudden, the internet bubble bursts, and then 9/11 happens, and all hell breaks loose again and again. I'll go back to how important it is to really be able to make a difference in really difficult times with people.

I met Joe and Ian in 1987 at Drexel. They are two remarkable value investors. They're partners with Warren Buffett. They're incredibly smart, incredibly patient capital, incredibly impossible to deal with. They argue more with themselves than with you. You're sitting there trying to negotiate with them and you can't figure out what's going on. I loved them from the start. Ian has since passed away, and Joe is still our chairman at the holdco today. I'd always wanted them to be on our board from 2000 to 2007 and three quarters, but our stock was trading at two to three times book, and they're value investors. They're the ones who gave me the lead money to start the fund that I was possibly going to do on the outside. In 2008, if you listen to our conference calls, it was always the analyst saying, 'Why aren't you levered up 40 to 1 like Lehman and Bear? Why don't you have 200 level three assets versus 3%? Why don't you have five to one debt to equity versus one to one?' All the ratios that allowed for 35 to 40% ROE. I was always, 'Hey, one to one debt to equity, 3% level three, below 10 times leverage, and a mid-teens ROE is always acceptable.' Because I always went back to my experience with Drexel. I always felt rule number one has to be: do not blow up your company. It sounds very obvious when you say it, but when I started, there were 500 investment banks. We were number 497. Now we're between three and seven in almost everything we do. It's not because we're geniuses. Most of them blew themselves up. Most of them just disappeared, primarily from arrogance. So I wound up going to Joe and Ian, watching what was going on, and I said, 'We need someone to validate our balance sheet.' I know our ratios are good, but the rating agencies drive all the ability to bring long-term value, and this was a very serious inflection point. So I wound up selling them roughly a third of our company and got them on the board. That allowed us to have the capital base to actually aggressively plan going forward. We hired about 2,000 people from 2008 to 2010 and three quarters because we were actually right-sized, and then all the bigger firms either went bankrupt or became bank holding companies in the middle on a Sunday night.

The merger was basically... Usually financial services mergers, one company buys another company for four times book. That company winds up having the same kind of people, so they fire half the people. There's a restructuring charge three years later, and it's a mess. That's how most financial services mergers have happened to that day prior. This was a stock for stock merger. No one got paid a retention bonus because nobody wound up having a new boss. I wanted to hide. The financial crisis was so rough on financial services companies. Leucadia had a beef company, a plastic company, a timber company, a healthcare company, and they had an investment bank. We were hidden underneath all that crap because I wanted to hide and spend time with my partners building Jefferies. The plan was to sell off those assets over the next 10 years and wind up investing that money in Jefferies and giving money back to the shareholders. The thought process here that people understand is having an ownership mentality of protecting your company and protecting your people. That has to be the priority in a financial services company. I look at what's happening today, it's not really a high priority.

We didn't really have ownership of the company, and there wasn't a duration or continuity of leadership. So what would happen is every three to five years, there'd be a horse race between two people. One person would wind up winning. They'd get rid of all the other people who were on the other side. Then you'd have a new strategic plan because the last strategic plan was somebody else's. You have this process that goes through from year to year, decade to decade. Next thing you know, the organization has a hard time standing for something or having a culture that's cohesive or really knowing what kind of behavior is rewarded. We've been blessed. I've been through every single up and down, and I've made lots of the mistakes you mentioned. We made lots of them. None of them were mortal. We wound up surviving them, but there were enough people working together as a team to identify, elevate, escalate, and deal with the issues. We had Archegos. I was on vacation during COVID. I was literally hanging out, first vacation. The phone rings. Pete Florenza, head of equities, calls up and says, 'We got this thing called Archegos.' He couldn't even say it, couldn't even spell it. I'm like, 'What is it?' 'Well, we don't really understand, but it was a prestigious client in prime brokerage and all.' I said, 'I'm going to go get a very nice little cocktail. I'm going to come back, and you're just going to tell me at the end of the day how much money we lost, because I want it all gone.' So I came back. He goes, 'How much?' And he said this number, which was staggering to me. It was 28 million dollars. I'm like, 'We are idiots. I'm the worst CEO on the planet. We have no freaking idea what we're doing. I cannot believe I'm on vacation, my first time. I can't see straight.' That was on a Thursday night. There's a Friday and a Saturday. I'm beating myself. On Sunday night, so-and-so was two billion, so-and-so was five billion. I'm like, 'I'm a genius. I'm the best. I'm on it.' But that happens. The fact of the matter is, you've got to really have people elevate it. You don't shoot the messenger. You don't hide it. In 2015-16, some firm said, 'We're shocked that you have high yield bonds and stressed debt trading in your firm.' Well, you know what? We do too. You don't shoot everybody because you have it. That was part of the business model.

Oh, we're getting out of it. It's been great being here. That's why he invited me. Look, when we did the merger with Leucadia, we were a holdco with a hodgepodge, and we were hiding. That's what I wanted to do. That's what our home management team wanted to do, to catch our breath. As we sold off the assets, we realized as an organization we have tremendous relationships with investors. We know a broad array of products and services. We have a reputable brand with Leucadia and Jefferies. We have all the infrastructure. There are a lot of people who want to partner with us in raising third-party capital but don't necessarily want to do it on their own or have the ability to put the critical amount of capital and infrastructure in place. So quite frankly, you and your partner Nick, we were able to convince you to basically leverage off the 5,000 people at Jefferies, all their relationships, all the flow that we see. We put our own money in. We have north of a billion and a half dollars in it ourselves. We help be flexible with the people in how they want to run their business. Quite frankly, we're good partners. Meaning good partners to the people who are with us, because asset management, active management, all aspects of it are tough. Just like when Drexel blew up, everyone's your friend when you're on top of the world. You only know if you have a good partner when things are slightly offsides. No matter who you are in asset management, if you're marking your portfolio properly, you're going to have times when you're offside. The thing is, how do you treat your partners? Is your own capital at risk? Are you picking the right people? Are you letting them be entrepreneurial? Thus far, we couldn't be more excited about where we are.

The capital markets have been pretty much shut for both leveraged finance and traditional leveraged finance and equity businesses. It's really a function of back in the last fall, when people were talking about rising interest rates, I looked around our company and I saw instead of the 5,000 people, there were like four of us who were around in 1994 who know what it's like to be in a rising interest rate environment. So I wrote this note. I put it out on my Instagram. It says, 'A Boomer's Guide to Rising Interest Rates.' No one read it. But then all of a sudden, things started to happen in the world. What I saw in 1994 and lived through has many parallels of today. It's not the higher interest rate that's the problem. It's the transition from stupid, free, incredibly ridiculous money at zero cost with stimulus going crazy. I understand why both of those things happen, but that's not the real world. The transition from low to something more normal is where all hell breaks loose. That's where people cannot price risk appropriately. So you can't really price a high yield bond. You can't price an IPO. The leveraged finance market, you're buying first lien paper at 15. There's no reason why you're going to buy an equity if you have that kind of risk reward. It's that interim period where all hell breaks loose. You don't get to the actual ultimate rate for this to be fixed because the market will get ahead. It will wind up anticipating it, and you have capital formation again. Right now, we're closer to the end of that than the beginning. You can see as the rate of increases starts to decrease, and you can see the mood set. We will have a normalization of rates. I can't tell you if it's four and a half, five, five and a quarter, wherever it's going to be. It's going to be. I can't tell you exactly when it's going to be, but the world will survive when it gets there. Triple C high yield bonds don't have to trade at five and a half percent. Risk reward is going to work. There will be cycles again in terms of restructurings. The natural cost of cycles will occur. We have people in our company, senior people who've been in our business for 10 years, who've never experienced a real cycle. That's actually a great time for stock pickers. It's a great time for investment banks that give real service and industry expertise in capital formation. But it's painful in that transition. I'm very optimistic we'll get there. In the meantime, it's not a lot of fun.

It's like four or five years ago, my daughter started making fun of me on her Instagram account. I guess I'm pretty ridiculous at times. So I go to meetings with banking clients, and our bankers are very stuffy. Everyone's bankers are stuffy. They have pitch books like this, and they're all very formal. I'd go to the meetings with our clients with our bankers, and before the meeting would start, the CEO would say, 'My daughter follows your daughter. Tell me about your floating picnic table.' And my bankers are next to me like, 'What the hell is going on here?' We never even used the pitch book. But it really personalized things. Then I stumbled into these financial meme accounts. I noticed a couple of interesting things. Number one, they are really, really funny. Number two, there were posts that were really, really nasty and mean. I realized this is how this whole generation is really communicating with each other. So I started posting some comments, not quite being as nasty, and kind of calling out the nastiness and giving another perspective to actually talk about it. All of a sudden, what you saw in these rooms is the younger people started to stand up for the right way. Not in every case. I get lots of hate DMs. Don't kid yourself. But it changed the tone in the conversations. I started connecting with a lot of people. What you'll learn is this is the future generation. When we were going through COVID, we bought Pelotons for our juniors. I asked how many Pelotons we bought to reward them for working non-stop. They said like 1,800 out of 5,000 people. I realized my company that I work for is not the same company I thought it was. It's a much younger, much more vibrant, much more unique from an age perspective. If we don't connect with that group of people and understand what's going on in their heads and be good mentors to them... I do a lot of Q&A, mostly going through every mistake I've made through my career. If someone else has the benefit of not repeating my exact mistake, I try to encourage all of our leaders at Jefferies to do it. I think it's a great medium to do it, and it's kind of fun.

First off, I don't necessarily just give them advice. I learn from them. I learn more from them than I think they learn from me. It's very much a two-way street. But if I had to give one piece of perspective for them, it goes back to this thought process of being an owner of your career and your life. Putting yourself in a position where you're surrounded by people who care about you at work, who will teach you, who will take a real interest in you. Doesn't mean you have to work really hard. I would say find the right balance in your life. No matter what you're doing, you have to find time to exercise. You have to find time for your parents and for your friends and families. I always tell them the most important thing is to find the right life partner. You find the right life partner, you have someone to celebrate when things are great, and you have someone to help pick you up when things are really rough. That balance and that ownership and having the passion to do what you want to do and not follow the herd. Everyone wanted to run to Drexel, and then all of a sudden it wasn't popular. Everyone ran away from Drexel. No one was going to Jefferies. Now people want to come to Jefferies. Independent thought, assessing the situation, asking questions, trying to see the whole picture. The last thing is be long-term oriented. This thing where you have juniors come out of college to get a job at an investment bank, but they don't want to be in an investment bank. They want to be in private equity. But they don't want to be in private equity. They want to be in an MBA. They want to be in tech. They have the next nine years planned out before they even start. I'm a big believer: try to, whatever you're doing, act like it's going to be your career. You'll do better at it no matter what. If it's not your career, you'll wind up having skills, and guess what? It might wind up being your career.

That wasn't on the script. I'm tone deaf, but man, Bruce Springsteen, a rock and roll story. We had a leadership offsite, and they played 'Surrender' by Cheap Trick. I got on stage, and I was tone deaf, but I got the moves. I know the words. In all seriousness, at this stage in my life, if I wasn't doing this, it'd be mostly working with future generations and trying to be a mentor. I have this amazing scholarship program with kids at Rochester. We give kids who overcome the most incredible odds in their lives, obstacles beyond obstacles, but they're also the smartest, the most talented. We're surrounded by those kids. My clients work with them. They work at Jefferies. They're doctors, they're lawyers. Being around that generation and the people in our company who are young and trying to figure out some smart way to give back. I think that's what I would do.