I'm honored to introduce a special guest who's going to introduce all of us, and that's Marie-Josée Kravis. She's a leading economist and philanthropist who has led some of the country's most important institutions in medicine and the arts. Her impact on CMC is huge, through her shared commitment with Henry to the Kravis Center, Kravis Leadership Institute, the Kravis Opportunity Fund, and the Kravis Department of Integrated Sciences. Please join me in welcoming Marie-Josée to the podium.
Thank you, Ken. I'm not sure the word economist is very popular. I was told that an economist is someone who's good with numbers, but didn't have the personality to be a chartered accountant. So here I am. I want to say a few words about Ken Valach. How many of you know Ken? I don't know if you know his family's story, but his four grandparents immigrated to this country. They had more than their share of hardships doing manual labor, but they really believed in hard work and in the power of education. And they instilled that in their children, and of course, in Ken. And just as an example, Ken, growing up in Salem, Oregon, started working in the strawberry fields at age eight. And he continued working, being a terrific student, and found his way to Claremont McKenna College and came here sight unseen. He hadn't gone on the college tours. He just came here and took his chances. And I think he's the one who said how intimidating it was at the beginning. He said after his first literature class, 'I wasn't sure I knew the difference between then and than.' And his first visit to the Athenaeum, he wasn't quite sure what to wear, but the other students helped him and he found his way and he excelled. Salem, Oregon. He didn't know about Disneyland or professional baseball games or plays. He spent a semester in Europe, and that began a 45-year engagement with Claremont McKenna. And his generosity, not just financial, but generosity of time, generosity of spirit, and just generosity of the heart, to this day continue to nourish his engagement and Janie's engagement to this college. So, Ken, really want to thank you for all you've done at Claremont McKenna.
Now, I have to say how happy I was to be back and how much Claremont has changed since I was last here. Seeing the science center and seeing so much of the art and hearing about all of the programs, and really this combination of technology and art and liberal arts and the humanities reminded me of, I think you've all heard the Steve Jobs quote, that technology isn't enough. It's technology married to the liberal arts, married to the humanities, as he said, that yields the products that make our hearts sing. And my heart was singing today. And I have to say, it really has your fingerprints on it, Hiram and Priya. It was really your commitment and your steadfast determination to bring together a very strong liberal arts core curriculum with science, with technology, with applied learning, and with real life experience. And we need to applaud and thank you for that. And I know you have your Summit today and there are many issues that you're addressing. Your agenda is very impressive. And obviously technology is going to change pedagogy, adaptive tutoring, automatic assessments, delivery through AI and digital means and policy implications. And I see that all of those topics are on your agenda. So another sign that Claremont McKenna is really a hybrid version of what's to come. And in higher education there are issues left. Obviously the four-year frontloaded learning and lifelong work is probably a model that you'll want to revise, adding more modular learning, stackable learning, and lifelong learning. Obviously, you're going to focus on costs of education, which are a real issue not only here but in every country. And obviously, you want to look at the impact of AI and technology and how that is going to change the world. But I'm sure you're going to come up with wonderful ideas. Again, the Einstein famous quote, that imagination is more valuable than knowledge, because knowledge is what we know. But imagination encircles the world and leads to innovation and new ideas. So here's to a wonderful summit filled with imagination and new ideas. And bravo to Claremont McKenna.
Thank you, Marie-Josée Kravis, that was wonderful. And you started off, I turned to George and said, well, that threw me a curveball just to start this off a little bit, but we're going to run out of time today. I can already tell you there's going to be so much to share. But I thought it was important, especially for a lot of the students in the room and others. You see these two names across campus, Kravis and Roberts. We're in Roberts Pavilion, where we started today, in the Kravis Center. And so to give a little background, because I was talking to the students last few nights at events and some didn't know this, is that Henry and George are actually cousins. Henry's mother and George's father were siblings, if I got that right. And Henry grew up in Tulsa, George in Houston. Ironically, I sat at a lunch a couple of weeks ago with a gentleman who grew up with George, and so they've known each other since they were two years old. And they both were fortunate enough to end up at what was called at the time Claremont Men's College. George graduated in 1966, so it's 60 years this year for him, and Henry a year later, in 1967. And not that he was a class behind, it wasn't that he didn't graduate on time this year. And I will also tell you, we're not going to touch everything, but there's some fascinating podcast interviews, how they drove to New York together, interned at Bear Stearns all the way from California, and they both ended up at Bear Stearns. And there they met their mentor, Jerry Kohlberg. And they started in this business, which was called management buyouts, wasn't called private equity. And they began in that, and it wasn't a core business to Bear Stearns. So in 1976, May 1st, it'll be 50 years ago here in a few weeks, they formed KKR with $120,000. I think as George pointed out somewhere, even though Bear Stearns' capitalization at the time was $30 million and Goldman was $50 million. So the world has changed. And they built KKR into a global what's now called private equity business with AUM of $800 billion. I think a market cap of $100 billion, 5,000 employees, and companies that employ over 1 million people. So it's been an incredible accomplishment. But this is about the big question. And so we're going to start out with the big question. And I'll direct this one first to George, who was the better student and who had more fun at Claremont McKenna College.
Well, I cannot disclose that, but we both had a lot of fun. And you know, it was like a 4.5-hour drive from here to Las Vegas. And Henry and I would partake of that a little bit. And on Wednesday, we had a friend named John Crouch, who was in our class, and he was really good at handicapping horses. So every Wednesday we could make the fifth race, set it up, whatever was offered. So we did that. We went to town a lot. We had a really good time. And we got a great education, that's for sure. So I think we both learned a hell of a lot here. One of us studied a little bit more than the other one. But we both got a great education and had a good time. We had the very good fortune of riding up in the elevator with Jill Stark. And Jill Stark told us that they both were very good boys, so that was fun. So everything's good. If Jill says that, you're fine.
So, Henry, you're here. The school's not even 20 years old at that point. When you come in, it's founded, the GI Bill, Saturday classes. I think you had to wear ties. You know, like I said, all men. Well, they had Scripps. I mean, what was the vibe on campus? I mean, what was kind of the culture?
About halfway through my freshman year, and I'd gone to boarding school before for high school in the east. I didn't want to stay in the east. I either wanted to go down south, or I wanted to go west. And ironically, the two schools that I was choosing between, and it was a toss-up, was Washington and Lee and Claremont. And those of you that are familiar, the next incoming president comes from W&L. So I called my dad about halfway through. And actually, I had written him a letter saying that I'm going to transfer from Claremont because at the time, I thought Claremont was actually like a prep school with ashtrays and, you know, the classes were great, but it really wasn't that much different. I didn't feel so. My brother calls me and to give me a heads up, he said, 'Dad's on the warpath. He said he got your letter.' And of course, you know, when you're a freshman in college, you know much more than your father, for sure. So he calls and I said, 'Yes, I'm going to transfer, and you can't stop me.' And he poured cold water on that by basically saying, 'I'm sure you'll be able to find jobs to work your way through school.' And that was sort of the end of that. And so I stayed here. And the more I stayed, the more I got into what the school was really all about. But you're right, Ken, it was all men at the time. Great college spirit. I played college golf for four years. I couldn't make your team today, I'm sure. But in those days, you know, I was able to do it and learned a lot about team sport and working. Loved the economics program, which is what I majored in. And it was just a wonderful small college where you could take a number of your courses at any of the other colleges around, which is one of the things that I really liked. So I would take art history courses at Scripps, for example, and so forth. So, you know, as I'm walking around the campus today and I see the breadth and the growth that the campus has undertaken under Hiram's leadership and David Mgrublian and now Ken, it's just phenomenal. And thank God that George and I went to college when we did, because I'm not positive we would get in today to this school.
A lot of us feel that way. And I think it's true for most of us on the board. George, for years there, was there a course, a professor, or something that just you said, 'Wow'? When you look back now, you know, 60-plus years later.
I will say he made me here. I saw one of my professors, Gordon Bjork, here today, and I still remember taking Professor Bjork's classes. And then mainly I remember great conversations with him. But it's a kind of one that stands out. Oh, I love not just one. There's probably six or seven that I remember, whether it be Doctor Kemp or Doctor Eldridge or Proctor Thompson or Doyle, who I had for Humanities. I don't remember the name of the marketing professor I had, but I do remember after the first midterm, this is before grade inflation, by the way, I got a D on my midterm. And that was the days when your parents actually got your grades. So I got a call from my father, said, 'What's going on?' I said, 'Don't worry about it.' I said, 'Everybody got a D in the class except two people that got a C, so I said, I actually, I got a B.' So I said, 'Don't worry about it.' You know, I think he was just sending us all a message that we needed to study harder, which I did and obviously did all well. In that class, Henry touched on this a second, but to the students here, you have an opportunity to get a real liberal arts education. So two of the classes I remember the most is a music history class I took at Scripps and an art history class I took at Pomona, as well as a history class, a couple of history classes I took there. And I still remember some of the economic classes and all the rest of it. But what's really helped me enjoy my life is the art, the music, the history and literature classes that you always take. So I know you're investing in your future and what you want your jobs to be, but if you want to invest in happiness in the future, your life, take a lot of the liberal arts classes.
I'd like to just add to that because, George, you've hit on something really important. And I'm convinced that you cannot be successful, and I don't care whether it's being an investor or being in business or a lot of other professions, if you're not curious. And oftentimes parents will call me and say, 'Would you be willing to meet with our daughter or our son? They're getting ready to go to college and they want to go in your business.' And I said, 'Happy to do so.' I come in and they'll say, 'You know, I want to go into the private equity business. What courses should I take?' And I said, 'You're probably going to hate my answer.' I said, 'Just go get an education.' 'No, you don't understand, Mr. Kravis. I want to be in your business.' I said, 'Well, I think I do understand. You know, George and I and Jerry started the industry and so, you know, if I could be of any help to you, you want to take history classes, art classes, literature, etc.' 'No, no, you're not getting it.' I said, 'No, I think I'm understanding it.' And that's a big problem today. Students today unfortunately want to specialize. And I think the world is changing so fast. I think it's a huge mistake to just specialize right off the bat in your freshman, sophomore year.
You know, I was listening to the interview here, but we've talked a lot about this and I just totally agree with you. I mean, we see these kids go in there, they're going to be a business finance major. And there's so much more to the world. And again, for a lot of you here, I know that right out in front of Roberts Pavilion is 'Meet in the Middle' by Chris Burden, which was a gift from George and Linnea. And then the Ellsworth Kelly right in front of Collins, 'Totem', which we looked at today, was also a gift from them. And this public art that's come thanks to Chris Walker, who's out here right here somewhere. There's Chris right in front of it, but it's changed the campus, but it also, they give this so it creates curiosity in all of you. So, George, how do you think, now we're going to jump right to public art or to art, you know, where did you, as you started your journey on art, where did you start after CMC? Did you start right away with contemporary modern? How did you cultivate that?
Well, first of all, I had to be able to afford something first. But my late wife was really, really the instigator in a lot of this. And we met a friend named Mary Slaughter, who's worked for us for 40-plus years, who's an art historian. And was getting started, too. And so she and Linnea, who I happened to meet at Claremont, she was in the first class at Pitzer, got another thing to thank the school for. We were married for 36 years, so she was really the instigator of, and she started to learn a lot about it. Started traveling in New York with it. She's the one that really got the interest, my interest going. And passed away. When I, and I've been together almost 20 years, has really taken up that mantle too and, you know, I keep learning a lot about it every day. You know, it's, we've been so fortunate to have, well, collect what we have. And every day when I go home, it just makes you happy looking at what you have. I know Henry and Marie-Josée have, you know, collections, too. So, it was really just getting started and having a woman, two women in my life that have better taste than me help me.
And Henry, I think, you know, it's really interesting when we greeted you today, you and Marie-Josée right away, along with your grandkids' baseball game, that you're able. But what you start talking about is I got a tour of great museums. I mean, that's, we didn't talk about any big deals or fundraisers right away. We got a tour of great museums. And so what kind of got your interest going originally, I guess?
I've been a collector my whole life. When I was in college, I collected college pennants to hang on your wall. I collected comic books as a kid. I collected first issues of stamps. I collected baseball cards and so forth. And then started collecting lithographs when I could afford it. And then eventually had a collection of sort of 18th and 19th-century European paintings. Marie-Josée and I got married and she said to me, rightly so, she said, 'Do you think there's any chance that I can get you into the 20th century? Much less the 21st century?' And I said, 'Sure, let's give it a try.' And together we've had just a wonderful time building the collection that we have, which spans from late 1800s to wet paint, basically, things that were just painted yesterday. And one of the great things is Marie-Josée's interest has been extremely helpful and her knowledge has been unbelievably helpful. She's currently the chairman of the Museum of Modern Art in New York and was president before that for 14 years. So, together, we've just had a great time putting this collection together that we have.
All right. Now, I'm going to take you back. I will say in our pre-call, both George and Henry said, we want to talk more about the future than the past, but I think this one is important. Everyone likes to say it's the worst today. Whatever's happening, you know, in the world today and whatever we've got. But you think about the 60s and early 70s, three political assassinations, the Vietnam War, Kent State. I just watched a documentary on that, oil shock, major recession, you know, then we had a president resign. I mean, how does a young person coming out into the world, you're working, you're in, I guess both in New York at that point. How did the world feel, or do you just put your head down and you keep going?
Well, first of all, today is the best day humans have ever lived. And it might not feel that way because we get this news so instantaneously. But people are the healthiest they've ever been, the most prosperous they've ever been. They have access to education beyond what they've ever had in the past. And even more that's coming with AI. So that anybody that tells you they want to go back to the good old days, you know, they ought to really understand what the good old days were really like. But look, you know, we're always going to have ups and downs in the world, you know, it just, it's the way it is. It's human nature. There's going to be business cycles. There's going to be, unfortunately, wars, on and on. I think the way to rationalize and get your mind around it is really going back and reading some of the things the Stoics wrote about. One of the first ones was Marcus Aurelius. He was the last good emperor of Rome, by the way, and he wrote a book called 'Meditations'. And it's really a diary. He didn't write a book. He just put down his thoughts. And it was really simple. Things be kind of a virtuous life. Focus on what you control. Don't deal with evilness. And really create happiness in your life. And, you know, focus on what's ahead of you and what you do. So when we started KKR, you're exactly right, Ken. All those things were going on. We started in 1976. George and I had three children each, no money. And at that point, no job because we had left Bear Stearns, couldn't raise a $25 million fund to get started. Being, I guess, good entrepreneurs, you're either going to get over the wall or you're going to get through the wall, but you're going to get to the other side somehow. And George and I went to dinner at a restaurant in New York called Joe and Rose, and we weren't feeling great after we found out that we couldn't raise a $25 million fund on terms that made sense for us. So we said, okay, we need to make sure that if we're going to start this firm, that we can at least survive for five years. And if we can't do some deals in five years, right now is known as private equity, we don't deserve to be out on our own. And so we put together a plan of how to cover our overhead. And as luck would have it, our overhead wasn't too high. It was a total of $500,000 that we estimated. We came up with that by basically holding our finger in the air in which way the wind was blowing. There's nothing scientific to it. And we said, well, let's go to eight individuals and see if we can get them to put up $50,000 each. That's $400,000. The other $100,000 we would get if we brought a company. We were not concerned because what we were going to be investing in were long-term investments. So we were not overly concerned about, yes, we've gone through an oil shock. Yes, we've got some tough times behind us and it wasn't the best of times in 1976. And you go forward up to the end of the 70s and beginning in 1980, and you had inflation running at 11.5%, you had a prime rate of 18.5%. And as Marcus Aurelius said in George's quote, he was saying, we said to the firm, focus on what you can control. And we've always said that to the people at the firm. We said it when we got into the global financial crisis, what goes up will come down, and what comes down will go up. And so there's always going to be cycles. And so, yes, you know, we embarked on this effort. We're often asked, did you know that this would be that successful? And George and I laugh about that because all we were trying to do is make sure we could survive for five years and do a couple of deals. That was it. No one was doing what's now known as private equity. And so that really got us started. And I guess we were more focused on survival than we were what was happening in the world, because we figured, the world's going to be what it's going to be. And if we can control, focus on what we can control, maybe we can be successful.
So on that, just thinking about resilience and failures, how do you handle KKR investments? I mean, we've talked, not everything works. And how do you learn from those mistakes and how do you keep a firm resilient and focused on the future and the positive, rather than getting mired down in the problems, which is easy to do?
Well, look, I think the, first of all, Henry and I never made any mistakes. But I think one of the attributes of somebody that's going to lead an organization is the ability to learn. I think that's probably a very important characteristic to learn. So we've done that over time. And we've obviously made our share of mistakes. What we've always said is if something works out, we've always given credit to other people. And when things don't work out, it's on us. And I think that's created an environment within KKR where people feel safe to take risk. And if everything you're doing is working out, you're not a good investor because you're not taking enough risk. You're just going to be average or below, quite frankly, if that's what you're doing. So you need to have built an organization that's willing to take a risk. And it's safe. They feel safe. They could walk in his office or mine and say, you know, you don't know what you're talking about. Or have you thought about this, that and the other, most of the time, they're right. We've missed something. So I think just being able to learn from your mistakes, hopefully we don't make them again. And really try to develop an organization, especially when you're the size we are today. It was easier when there was three of us. We just talked every day and figured out what was going on. We didn't even write all these memos that everybody writes now. But, you know, when you're trying to build an organization, you have to empower the people that are actually doing the work and working on it to make decisions, to be able to do it. Then every once in a while, you know, you'll remember something and you can bring that out to do it.
I think, just to add to what George has said, it really goes back to the culture and values that we established on day one in 1976. And that was we wanted to have a culture which was an inclusive culture where everybody at the firm worked on or was paid, whether you worked on a transaction or you didn't, whether you brought it in or you didn't, whether you were a partner at the firm or you weren't, we wanted to build a real team and cohesive culture. And today, here we are, 50 years later, May 1st next Friday will be 50 years. We have exactly the same culture, except we have close to 5,000 employees now, 38 offices around the world and so forth. And we live by that value structure that we have, that everybody works together. We don't have anybody running around saying, 'That's my idea. That's my deal.' We've had people at the firm who made us a lot of money. We let them go, and the reason we let them go, they could not live by our culture. They wouldn't help anybody. They wouldn't work with anybody else. And you start having people like that, you'll blow it up. So what George is saying, that is the foundation, the DNA of what we're all about, and that's held us in really good stead for 50 years. And I hope for the next 50 years at least, we're following off on that.
And, you know, those people who make you a lot of money, a lot of us have been in that position, but they don't have the culture, our firm, where they say they don't have the heart that we require. You know, that it's a tough decision to lose times because they're very talented. What do you look for in the leaders at KKR? And what characteristic would you think when you see in someone is just a non-starter?
Well, I think one of the things that's really important to George, to me, and we always say, and even to this day, we would say, you know, when you come into work, think of KKR as a startup. Think of it, what can you bring as a new idea? We're looking for people who are innovative. We're looking for people who are prepared to take risk and to show that you've got real leadership and stand up for what you truly believe in. George and I have been blessed because being co-CEOs, co-founders, and now co-executive chair, you know, we have the same values or the same goals in mind. And as Harry Truman used to say, if you don't worry about who gets credit for something, it's amazing how far you can go. And George and I've never worried. I'm pulling for George, and he's pulling for me, and we're pulling for the firm. And that's really an important thing. No one would become a CEO or co-CEO or run one of our groups if they didn't live by our culture. That culture and the value system that we put together is the most, most important thing. But we want people who are creative, who are not afraid to fail, you know, as George said. And it's so true, if you don't fail in some of your investments. And by the way, George and I could write a book about the number of failures we've had over the years on investments. We've also had a time where things weren't going well for us as a firm. And we said, okay, let's take a step back and let's figure out what's going wrong and let's redesign what we're doing. And we did, and that was in basically 1999. And that was a very important transition period for us because had we continued on the track we were going, I'm not sure we'd necessarily be sitting here today.
By the way, I will offer right now, Claremont McKenna College will sponsor that book. We would be proud.
