In Conversation with Polsky Investor-In-Residence Tim Kelly: ‘We Will Evolve and Adapt’

The COVD-19 pandemic is changing the way business is conducted, notes Polsky Center Investor-In-Residence Tim Kelly, MBA ’00, who in this Q&A discusses evolving strategy in times of crisis – and his top four pieces of advice.

Kelly’s career spans more than 30 years in private equity, law, and listed securities trading. A former partner (retired) at Adams Street Partners, he has sponsored and was personally responsible for managing over $5 billion of private investments, and led highly accomplished teams of investment professionals across his career.

What is the advice you most often find yourself sharing with the students?

The most rewarding part of my role as an Investor-in-Residence is being able to look back across my thirty-plus years as an investor with Goldman Sachs, Allstate, GE Capital, and Adams Street and use my many experiences to help students achieve their career as well as life aspirations. The most common advice I share with students is fourfold.

First, I share a major tenet of my life with them, an old quote from BC Forbes’ the founder of the Forbes magazine: “With all thy getting, get understanding.” Too often when we start out early in life seeking a career, we experience so many things, both good and bad, that pass us by so quickly.

We are thrown into new experiences which generate the full gamut of emotional reactions from excitement and almost euphoria (like the first big trade I made as a new trader at Goldman Sachs in my early twenties) to those that make us uncomfortable, anxious, and maybe a little bit scared (like when I found myself in front of Allstate’s Chief Investment Officer pitching a deal that exposed Allstate to serious liability in the event an embedded ambiguous legal issue was not resolved favorably as I predicted it would be).

I try to tell students never to let an experience go by without milking it for every ounce of learning and growth you can get out of it. Life goes by so quickly, and learning from every experience you have had better prepares you for those you will experience in the future. It might sound trite, but we have to force ourselves to relive good as well as bad experiences as a means of constantly developing, learning, and growing.

Second, I spend a lot of time, including a workshop I teach and a specific article I wrote, trying to share how nebulous the concept of “success” is until you define it for yourself. So many students seek my advice on the premise they want to be successful. Often, this concept equates with money to some degree. I try to share that success defined monetarily is elusive and rarely brings one happiness. I encourage students to define success in terms of emulating roles models, achieving a challenging goal, doing something that benefits others in some way, or accomplishing some virtuous thing in life, no matter how small or insignificant it may seem to others if it will bring you happiness.

I share that a dear friend of mine, a homeless man, once told me he defined success as “staying free from drugs and alcohol, with the goal of one day being accepted again by his wife and daughter.” I was stunned by the way that definition guided him towards that goal so resolutely. Like the song says, money might buy you a boat, but it won’t buy you happiness.

Third, I share that the greatest thing they can focus on achieving is Emotional Intelligence. Our students are so amazing in terms of the hard skills they perfect and offer an employer. But, over time, hard skills start to wain in importance as they start to become managers and ultimately leaders. To be the best leader they can be, they must achieve great self-knowledge (strengths as well as weaknesses), and great social-knowledge (knowing their audience, being empathetic, controlling their emotions, etc.). I am a staunch believer that Emotional Intelligence is the key to a successful and rewarding life as well as career.

Fourth, never underestimate the power of networking. For example, although an interview might not go well, you met people along the interview process that if you actively nurture the relationship over time, even if they turned you down for the job, who knows how they can help you in the future. Networking takes a lot of time, a lot of focus, and immense perseverance; but, the efforts you put into building your network will pay you back time and again during your life.

Never let a meeting or social gathering go by without making a note of who you met and something about them that will build a follow-up conversation in the future. We all like to be remembered by someone, it’s a normal aspect of our psyche, so actively work to remember something about everyone you meet no matter how insignificant.

What are some of the most common challenges students come to you with?

The most common two questions I receive from students are: (1) How can I break into a great career in PE given my background, and (2) what are the top skills you think are most needed to be successful in a PE.

Breaking into or finding a great career in any field requires tenacity, creativity, and a shear “never give up” focus. Our students are gifted in the skills they have and their levels of intelligence. They need to remain optimistic even in the face of constant rejections or the inability to land their ideal job right out of the gate. Careers are built by effortlessly strategizing what do you need that you don’t have to get where you want to be, and then getting the education, skills, experience or whatever it is you are lacking.

Never become complacent in a job you have that you find satisfying, for tomorrow is promised to no one; meaning, I’ve witnessed so many wildly successful people wake up one day to find their company has been bought and they are out of a job (as when my company, Heller Financial, was bought by GE Capital), or the job they had was replaced by some new technology that made them no longer necessary (as I witnessed when technology eliminated many trading positions formerly held by people like me). And, finally, networking.

As I explained above, never let your network fall dormant or grow old. Constantly work at meeting new people, expanding your range of contacts since every career is built on relationships and networking is a fire that helps forge relationships.

The top skills needed to be successful. I love his question as my answer is a key part of the hypothetical letter I would send the younger me! First, humility, as you won’t get far in life with an arrogant attitude. You can always learn something from someone else, no matter how they might strike you or where they stand relative to your position. Like the quote from Thoreau says: “There will always be greater and lesser persons than you,” so always be willing and open to learning from everyone around you, constantly.

Second, curiosity, especially curiosity blended with a healthy dose of skepticism. Especially in the investment world, be curious to new ideas, and open to exploring new investment opportunities. Fight the urge to impose personal bias in your reactions to a new opportunity and be open to discovering something you didn’t know previously. But, be wary of snake oil salesmen.

I once turned down a seemingly amazing opportunity offered to me, and received considerable admonishment from my boss and criticism from my colleagues for the decision. I turned the opportunity down because it appeared too good on the surface, and the sponsor was too unwilling to respond to even the most basic due diligence I posed. The opportunity was to invest in Enron’s newest fund, LJM2. It was the fund that led to Enron’s stunning bankruptcy!

Third, the skills associated with emotional intelligence (see above). Those that have focused on, especially those that can say they have mastered, the skills associated with emotional intelligence will go further in their careers as well as life compared to those that fail to learn the skills associated with EQ.

In light of the pandemic, how have these challenges evolved? What would your advice be today?

Although life as we knew it has changed dramatically in the wake of the pandemic, I would urge our students to not view the current moment in time as particularly revolutionary but, instead, as merely evolutionary.

What I mean by this is that the world and everything about it is dynamic, and constantly evolving. The pandemic has and will change many things about the way we do business and socially interact, but we will evolve and adapt to the pandemic’s effects the same way we evolved and adapted during any prior crisis moment in time.

Revolutionary moments require entirely new skills, entirely new ways to continue to live. Evolutionary moments demand the same skills as before, but require that they be adapted or altered in some way to be effective given the new status quo.

For example, after the crash of 1987, some feared that the New York Stock Exchange and public markets were in serious risk of failure.  Structural changes were made to public market trading, in the sense of circuit breakers and other structural alterations, and the market recovered and entered an unprecedented bull market.

The tech bubble burst in 2000, leading to mass hysteria that Silicon Valley was dead and venture capital was a thing of the past. Instead, venture markets and interest in venture capital failed to falter and entered a period of equally unprecedented growth and vitality that exists to this very day. Even 9/11 and the crash of 2008 did not stop the way we did business, they merely altered the way we did business.

Someone once said: “The world grows wiser with age, but that doesn’t it mean it was onetime foolish.” Our students have many great skills, some newly developed and some merely honed as a result of their work at the University of Chicago/Booth, but the one that is required the most in the wake of the pandemic and every crisis that will follow in the future, is to learn how to adapt those skills to the new circumstances of life. I argue skills in demand have and will not change greatly with new crises, but how we apply our skills will.

As an investor, how has your strategy evolved?

It’s hard to have experienced each of the crises mentioned above as well as the current one, without embedding the learning that they offer into the way I have built my portfolio and otherwise invest. Once you experience a Black Swan moment, it ceases to be a Black Swan risk going forward.

For example, the crash of 1987 reinforced in my mind the amazing power and value that diversification offers to portfolio construction. Trends will change, sometimes rapidly (look at oil volatility over the last month or two, for example!); so now I stress test my portfolio constantly to ensure I have achieved and maintained an optimal level of diversification to reduce risk accordingly.

The crashes of 2000 and 2008 reinforce in my portfolio strategy the importance of rebalancing in order to reduce risks that are embedded in overheated sectors or parts of my portfolio. The current crisis has caused me to appreciate the power of cash in a portfolio (offers great opportunity to exploit market weakness/value opportunities due to overreactions and market anomalies) and to consider potential risk where none was previously thought present.

Luckily, I have been very careful in selecting top-quality municipal bond investments as a core element of my portfolio (e.g., heavily weighted on AA and AAA issuers). In today’s crisis, however, even these otherwise top quality credits are showing more risk than they should given Black Swan pressure on tax revenues, education attendance, even toll road usage!

I am learning to implement far more Black Swan thinking into my portfolio construction that I ever did previously. But, that is the hard part of portfolio construction, you don’t know about a Black Swan risk that you should guard against until you experience it!

Any other advice?

During this moment in time, remain calm and do not panic. This too shall pass. Only worry about and try to control those things that you can control. Send out your resumes, make your networking calls, remain persistent with your job searches. These things you control, so work at them diligently.

Let others around you slow their searches, fail to send out resumes, procrastinate with their networking efforts under the false belief that the crisis will negatively affect their success anyways. Failure to control that which you can control leads to undesired outcomes most certainly. Controlling that which you control at least improves your chances of a positive result!

// The Investor-in-Residence program at the University of Chicago’s Polsky Center for Entrepreneurship and Innovation provides mentorship and coaching to students interested in learning about and pursuing careers in private equity, venture capital, and entrepreneurship through acquisition.