Ken Moelis founded Moelis & Company, an independent investment bank, eight years ago to recreate a more familial working environment that he enjoyed when he got into the finance business. He’s created that in his 650-member firm, which provides strategic financial advice, focusing on clients’ long-term interests and business objectives. Moelis & Company has earned the trust to handle some of the largest and most complex transactions globally. The firm is based in 17 offices in North America, South America, Europe, the Middle East, Asia and Australia.
What are the key activities of Moelis & Company?
The primary offering is M&A advisory, which is taking a deep dive into companies, their goals and what they want to achieve. We work with their CEO, and sometimes with their board of directors, to advise them on strategy, tactics and financing. We extend that M&A work into restructurings where our advisory role is to help clients understand their rights vis-à-vis their creditors. On capital advisory, when companies go to market, sometimes they are not sure if the firm that is selling their debt or equity securities is playing a dual role. So companies hire independent advisors such as ourselves to help them decide how to best raise money.
When you look back after your first eight years, what makes you proud of Moelis & Company?
We are a small organization with 650 employees, and together, we have built a great culture that I am proud of. From a client perspective, we pride ourselves on confidentiality. The confidentiality aspect of our deals has become extremely important in getting M&A done, and in making sure clients are doing the right transaction.
You were President of UBS Investment Bank in 2007 when you left, and within one year, you began Moelis & Company. Previous to UBS, you played prominent roles at other major investment banks. Why did you decide to start your own firm?
When I started at Drexel Burnham in 1981, the entire partnership could sit around a conference table. By 2006, I realized that I sat in a 26,000-person firm with a rule book so thick that I didn’t feel creative anymore — I felt bureaucratic. What happened on Wall Street was that we began with these entrepreneurial, intellectually driven firms and made them into giant bureaucracies. That was not where I wanted to be.
My first thought was that I needed to get out. Then I looked around me for independent financial advisory firms with the culture that I sought, and unfortunately, they didn’t exist as they had all been merged. For example, within UBS, there are probably five investment banks. So I decided to start my own firm. I love the business — it is fun, exciting, and you’re talking to really smart people who are the heads of industries. It’s like going to school every day. There is no job like this where you literally learn something from every client meeting.
How did the financial crisis affect the founding of your firm?
The crisis gave me an opportunity because nobody was comfortable where they were. Everybody thought about whether they were in the right place or not. Did I know 100% there would be a crisis of this magnitude? No, but I gave a speech at a Wharton event saying that I thought the industry would lose as much as 35% of its workforce. I did have a feeling that the industry would have difficulty culturally, because advisors were not comfortable. Bankers who would not normally think of leaving their firms, did so. So when I began the firm, I was able to assemble the tent poles, those senior bankers who agreed with me on the opportunity, on the culture and the vision of the firm.
So is hiring your strategy for growth?
No. Hiring is not a permanent strategy for growth. Our strategy is to become a talent replication machine — so we can go into schools like Wharton, hire graduates, and then train them and promote them. Then you can create your own future. That is the key to a truly successful franchise, rather than a deal shop. Hiring those bankers at the crisis was a great accelerator. It saved me decades. I wanted to build that superstructure and then use it as a talent creation machine. That’s where I hope to differentiate our firm.
By the way, there should be a bumper sticker that says, “Powered by Wharton.” When I started Moelis & Company, Wharton treated us like we were a 100-year old firm, so I have a lot to thank Wharton for.
Moelis & Company entered the Brazilian market in 2014 at a challenging time (just as you founded your company during a challenging time). Can you explain your thinking or approach?
We entered Brazil in 2014 after the bubble had burst, which was the perfect time. You could not extract the best bankers in 2011 unless you overpaid, but we were able to hire some great people in 2014. You don’t hire someone to start working on your most important transactions on their first day on the job. There is no better time to get to know somebody than when times are difficult. We’ll put our time into getting to know our clients and their business, and after the market bottoms out, we’ll benefit from those deep substantial relationships, not unlike what we did in the U.S. in 2008, 2009. You have to understand that M&A is a long-lead-time business.
Can you speak to a trend that you see in the investment banking industry?
All the regulations aside, the marketplace is driving the breakup of large banks. A lot of things that the regulators are trying to enforce, is being done by the market, which wants more specialization. Moelis & Company doesn’t do lending, and we don’t do sales and trading. Our clients want us to have a singular focus on their strategy and business, and this is what we are providing.
What was your path from Wharton?
Wharton let me into a five-year program, from which I graduated. Because my dad was a lawyer and my brother was a lawyer I applied to law school, and was accepted. Then because everyone was getting a job on Wall Street, I decided to apply for work in a Wall Street bank, but no investment bank would hire me. I finally got a job at Drexel Burnham, to find out what was so special about investment banking, and then I deferred law school. I loved the company and stayed there 10 years. I moved to DLJ, which was sold to Credit Suisse. Then I moved to UBS.
Following is an excerpt from Ken Moelis’ inspiring acceptance speech at the Joseph Wharton Awards Dinner.
What I love about the Wharton School is it was very good at setting a path for how the world really works. If you watch the movie The Matrix, it was like in life you can take the red pill or the blue pill — and Wharton was that red pill. There really was a world out there, where if you abide by certain formulas, proper incentives and business principles, then the world works. One plus one really does equal two.
“I’ve stayed close to Wharton because I think it’s unique in the world. It is so satisfying to work with people like Alex Gorsky, who are changing the world and delivering value, jobs and products to people.
“There are so many institutions teaching millions of people the wrong things about what business is like. In fact, there was a study done about popular culture on prime-time TV. About 40% of the crimes committed on prime-time TV are committed by businesspeople; 50% of investment professionals depicted are criminals; and 30% of those commit murder. Zero did anything positive for society. And by the way, you were five times more likely to be murdered or kidnapped by a businessman than by gang members, terrorists or the mob. This is what our kids are watching, and what America is watching. We’re the Wharton Business School, which I call a ‘little fortress’ against those portrayals. You come here to this dinner, and see the incredible things that alumni are doing.
“The reason I’ve centered my giving and attention on Wharton is that I do believe it is the leading business school in the world. And what I like about our new Dean, Geoff Garrett, is that he believes that business is a force for good.
What did you learn from your dad?
First of all, my dad was a very good, common-sense businessman. He taught me so much, but I remember one story from the 1970s when he ran a central station alarm company. The company was switching to this new thing called a computer that would do the billing, but it cost $250,000. I asked him how he paid for it. He told me that he wrote a letter and sent it to each of his customers that said, “We just bought a computer. It will improve your service, and we were hoping you would help us defray the cost, and add some payment to your bill.” He said that 90% of the customers sent in an extra payment to help pay for the computer! I always remembered that story. Instead of billing or demanding payment, he made it optional and asked. What I learned was that your clients want you to succeed — it’s not a zero-sum game. I tell my bankers, “Trust your clients, and if you give them 100% focus and integrity in the product, they will make sure that we get rewarded.” I do a lot of business on a handshake. I think that has something to do with that lesson from my father.
For young alumni, what are the enduring traits to become an investment banker?
There are different ways to succeed. You have to be intelligent enough to integrate concepts in a way that you can deliver a cohesive answer to the client.
If you’re not smart enough, either you won’t get in the industry or you’ll be out fast. But underneath that, you have to care. You’re being invited into a company’s most important decisions. A lot of time was spent in developing the company, and now you are the invited guest to see it through a very important transaction. The company will sense very quickly if you care as much as it does. The company’s executives are asking themselves, “Will this bother you as much as it does us if it doesn’t turn out the right way?” The company knows your specialty is the financial side, but it needs to know that you care.
What actual knowledge that you gained in your classes, has played out in your career?
In investment banking, we try to integrate a series of concepts that are not readily apparent. There is the expertise you have of an industry sector, the deep understanding required of the global economy, and multiple complex factors, and you integrate that with the numbers. What Wharton did was ground me in accounting and finance, which gave me a floor on which to integrate all these factors.
Do you have any memory of a particular class at Wharton?
Our investment banking class professor invited a speaker, Fred Whittemore, who was with Morgan Stanley. Whittemore started to explain how a public offering works. He said, “We’re going to take this company public — it’s called Apple.” He walked through how the IPO was going to work, what the lead manager did and what the selling group was. He was enthusiastic and explained it in such a way that probably changed my career forever. ♦