Welcome back to the Alt Goes Mainstream podcast.
Today’s podcast takes us into the importance of ownership and equity, and how the world’s largest private equity firm (source: PEI 300) has helped create a culture of ownership within its portfolio companies and more broadly across the industry.
With the backdrop of KKR’s studio in New York and the firm fresh off the heels of celebrating its 50th Anniversary, we sat down with KKR’s Global Co-Head of Private Equity Pete Stavros for a live conversation during AGM’s RIA Field Trip to discuss how culture can be a competitive advantage and how it defines much of what KKR does both internally and with its portfolio companies.
Pete has not only been a leading private equity investor at one of the industry’s largest firms, but he’s also been a pioneer in one of the industry’s most important initiatives: enabling employees of private equity-backed companies to share in ownership of the companies where they work.
The firm’s Broad-Based Employee Ownership has delivered on its promise in many ways, with KKR’s recent 14x (and $4.75B) exit on CoolIT providing all 650 CoolIT employees with cash payouts that ranged from approximately one year to more than eight years of annual pay, which, as Pete noted in our conversation, was “life-changing for many employees.”
Pete and I had a fascinating conversation about the culture of ownership at KKR, the evolution of the firm’s private equity platform, why it’s so important to make employees owners, and how it’s created a ripple effect in the industry. We covered:
KKR’s “we not I” culture.
Why the most important trend in private equity going forward will be a shift from “balance sheet and income statement arbitrage to total cultural transformation.”
Why and how culture is an advantage — and how KKR sustains its competitive advantage.
The power of a scaled platform and why the division of labor is important as firms grow.
What Pete means by “persistence in process.”
How can companies encourage people to act like owners, and why is it so important for employee retention and productivity?
How can sharing equity ownership be used as a tool to change culture?
The impact the private equity industry can have through its ability to cascade change.
Bio
Pete Stavros (NewYork) joined KKR in 2005 and is Co-Head of Global Private Equity. This includes oversight of assets across Europe, Asia and the Americas and traditional large and mid-cap private equity, core and growth equity. Prior to this role, Pete served as Co-Head of the Americas Private Equity platform. He is a member of several investment committees at KKR. As an investor, Pete has helped lead a number of successful investments across sectors and sizes, including HCA Healthcare, Nielsen, Gardner Denver / Ingersoll Rand, Capsugel, Capital Safety, Hyperion, Flow Control Group, Charter Next Generation, Minnesota Rubber and Plastics, Geostabilization International, Crosby Group and CHI Overhead Doors. Prior to becoming Co-Head of Americas Private Equity, Pete led the Industrials industry team where he pioneered an innovative employee engagement and ownership model. This approach has been successfully implemented at more than 90 KKR companies and has positively impacted more than 200,000 workers. Pete is the Founder and Chairman of Ownership Works, a non-profit focused on building a worker ownership movement globally and enhancing the financial resiliency of the workforce. The goal of Ownership Works is to create more than $20 billion of wealth for working families over the next decade. Pete is also the Founder and Chairman of Expanding ESOPs, an organization focused on dramatically expanding the number of Employee Stock Ownership Plans (ESOPs) in corporate America. Prior to joining KKR, Pete was an investor with GTCR Golder Rauner, where he was an investor in the healthcare sector. He holds a B.S. in Chemistry, magna cum laude, from Duke University and an M.B.A. with high distinction, Baker Scholar, from Harvard Business School.
Thanks, Pete, for sharing your wisdom, expertise, and passion on private equity and making everyone an owner.
A word from AGM podcast sponsor, Ultimus Fund Solutions
This episode of Alt Goes Mainstream is brought to you by Ultimus, the full-service fund administrator and transfer agent powering asset managers in private and public markets. As alts go mainstream, you need real expertise to handle complex fund structures, connect with key distribution partners, and handle sophisticated compliance, reporting, and transparency demands.
That’s Ultimus: high-tech, high-touch solutions for over 450 clients and 2,500 funds with $775B in assets under administration. Backed by an expert team of over 1,200 employees, they place client service at the core of their business, helping you navigate complexity during your fund structuring or launch and then supporting you through every stage of growth. Whether you’re already in the market or thinking about entering private wealth, you can trust their team’s deep expertise in retail alternatives to help you reach your goals.
Learn more: ultimusfundsolutions.com or email info@ultimusfundsolutions.com.
We thank Ultimus for their support of alts going mainstream.
Show Notes
00:00 Live From AGM Field Trip at KKR Studio In NYC
00:29 A Message From Ultimus Fund Solutions
02:00 Meet Pete Stavros
02:09 The Story of Joining KKR
02:33 From Interviews To NYC
03:08 All About Collaboration
03:26 A No Star Culture
04:40 How Culture Is Sustained
04:53 Ritz-Carlton Analogy
05:23 No Star Culture
05:42 Culture Shapes Investing
06:07 Platform Resources Edge
06:24 Capital Markets Bench
06:41 Macro And Ops Experts
07:06 Making Resources Work
08:11 Consistency And Process
08:40 Evolving Value Creation
09:07 Gardner Denver / Ingersoll Rand Case
09:49 Value Engineering Method
10:09 Warehouse Teardown
10:54 Customer Feedback Loop
11:25 Sixty Million In Savings
11:50 Culture As The Next Frontier
12:16 Defining Transformation
12:27 Workforce Crisis Stats
13:39 Problems Are Global
15:04 Underwriting Culture Risk
15:28 Leadership Makes It Work
16:42 Ownership Done Right
17:49 BBEO Origins
20:07 Early Mistakes Learned
20:51 Scaling To 85 Companies
21:00 CoolIT Exit Results
22:00 Closing The Wealth Loop
22:26 Financial Literacy Journey
23:02 Truck Loan Lesson
23:54 Building Resilience Stack
25:42 Exit Support Package
26:17 Industry Adoption
27:13 Ownership Works Launch
27:51 Street Loan Cautionary Tale
30:03 Why Share The Playbook
31:42 Taking Ownership Global
32:13 International Rollout
33:30 Local Culture Differences
34:19 State Of Private Equity
34:45 Is Software Dead
35:17 KKR Software Approach
36:41 AI At Portfolio Scale
37:34 One Hundred Thirty Tests
37:57 Buying The Fear Trade
38:11 Accounting Is Not Dead
39:14 Closing Thoughts
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