Charlie Kelley, Gustavus Class of ’75 and founder of the private equity firm Compass Capital, recalls some memorable professors and experiences at Gustavus and talks about his brief and formative stint as a repo man, his career in financial services and decision to start his own firm, and the Gustavus Hong Kong Travel Program for Economics and Management students that he started and, with his wife Emily, leads.
Season 7, Episode 8: From Repo Man to Investment Firm Founder
Greg Kaster:
Hello, and welcome to Learning for Life @ Gustavus, the podcast about people teaching and learning at Gustavus Adolphus College, and the myriad ways a Gustavus liberal arts education provides a lasting foundation for lives of fulfillment and purpose. I’m your host, Greg Kaster, faculty member in the department of history.
The Gustavus mission statement speaks of educating students in a framework that is “international in perspective.” That means not only incorporating global perspectives into the curriculum as the college’s new general education challenge curriculum does, but also offering a host of opportunities for international travel and learning. Among the latter is the economics and management department’s unique and exciting January term Hong Kong travel program, generously sponsored and led by my guest today, alumnus Charlie Kelley.
Charlie graduated Gustavus in 1975 with a degree in economics, accounting, and business, and went on to a successful career in the financial industry, first with Norwest, now Wells Fargo, and then with Compass Capital, which he founded in 1988, and where he is senior portfolio manager. A chartered financial analyst, Charlie serves on the investment committees of Gustavus and Project for Pride in Living, a Minneapolis nonprofit. Since hearing two students speak about their experience as participants in the Hong Kong program, I knew I wanted to speak with Charlie for the podcast, and I’m delighted he can join me. Welcome, Charlie. It’s great to have you.
Charlie Kelley:
Yeah, it’s great to be here, and I look forward to our conversation.
Greg Kaster:
Likewise. Thanks so much. So, as I often say in the podcast, I’m a historian, and I’m interested in origins, so maybe we can start at the beginning and work our way toward the present. Tell us a little bit about your background, where you grew up.
Charlie Kelley:
Well, I grew up in Minnetonka. I went to Minnetonka High School. I graduated from Minnetonka in 1971, and spent my whole life in the Lake Minnetonka area.
Greg Kaster:
Were your parents both working when you were growing up, or …
Charlie Kelley:
My father was a World War II veteran. He never graduated from college. He ended up in the insurance business. My mother didn’t work at the time, but she graduated from Vassar College with a chemical engineering degree-
Greg Kaster:
Wow, no kidding.
Charlie Kelley:
… and ended up in San Francisco during World War II, working for DuPont during the day and riding ambulances back and forth from Navy ships to the hospitals at night.
Greg Kaster:
Wow, okay. So, I’m thinking I need to interview your mom. Is your mom still living, or not?
Charlie Kelley:
No, she’s passed away. She talks fondly about V-J day in San Francisco during the war, and that was, I think, a wonderful time of her life.
Greg Kaster:
Yeah. Wow, that’s amazing, especially that era. I mean, there weren’t … Well, even though Vassar was a women’s college, still. And to be in science, too. We’re the same vintage, 75, as we know. We’re the same age. A good year to graduate, I guess. But like your dad, my dad was a World War II vet, didn’t go to college, grew up in Chicago, and then became a hairdresser. That’s what he did for his career. And my mom, as well, then went to work with him. But his dad had been a barber, so kind of a familiar story. Were you the first to go to college in your family? [crosstalk 00:03:38] or your mom went. You just said your mom went, that’s right. Yeah.
Charlie Kelley:
My brother was the first on the Kelley line to go to college and graduate. My father did go for a few years before the war, but everyone enlisted, and it was hard to get back into it after what you saw in the South Pacific with [crosstalk 00:03:59]
Greg Kaster:
Sure. Yeah, no kidding. Oh, wow. Yeah, my dad was in the European theater. What about, why Gustavus? Was that already on your radar in high school? I mean, was that a school you had connections to, or …
Charlie Kelley:
Well, it was interesting. I played hockey at Minnetonka. I was all set to go to the University of Minnesota, to try to play hockey there. And my father came home in August of that summer between high school and college and said, “You should think about this small college called Gustavus.” And so my father and I drove down to Gustavus, and the hockey coach down there was a fellow named Donny Roberts, which [crosstalk 00:04:44]
Greg Kaster:
Oh, of course; a legend, yeah.
Charlie Kelley:
Yeah. He had started the program in 1968, and he’s … Obviously, the hockey rink’s named after him. Met with him, and I went and applied. And two days later, I was accepted.
Greg Kaster:
And so, did you wind up playing hockey all four years?
Charlie Kelley:
Yeah. And that was a very interesting part of my career at Gustavus. When I was a freshman, I made the varsity. There was three freshmen on the varsity team, but we had 18 seniors. And we won the MIAC that year. And the following year, we had 14 graduates on the team, so there was only six of us coming back, including our … We didn’t have a goalie. And it’s all about chemistry, and no stars on the team. And I think that’s the last time a team in the MIAC went undefeated. We rolled the table. We won every MIAC game.
Greg Kaster:
Wow. And that’s the Minnesota Intercollegiate Athletic Association. That’s amazing. And yeah, Donny Roberts, as well, he’s a legend. So, why econ? What drew you to that? Was it because of your dad’s work, or your mom’s work? And when did you know? When did you know that’s what you wanted to major in?
Charlie Kelley:
I think it was my grandfather and my dad were both in the insurance business, and heavily involved in the insurance business, and my exposure to their friends. That’s what pushed me more into business than econ. But you talk about professors at Gustavus, there was a professor, Clair McRostie.
Greg Kaster:
Oh, of course. Yeah, sure.
Charlie Kelley:
I had him for 101 Econ, in that auditorium, and it changed everything. And Kyle Montague, I had for business law. And these guys were both ruthless. And if you didn’t come to class prepared, they told you. So, it was one of those fearful, but you learned a great deal, and [crosstalk 00:06:56] learning was amazing.
Greg Kaster:
Both of those professors, now sadly deceased. Both of them were at Gustavus when I arrived in ’86. And yeah, even I was a little intimidated. I remember Kyle. What did they call him? Boomer Montague.
Charlie Kelley:
Boomer, yeah Montague.
Greg Kaster:
He was Kyle Montague. Yeah, he’d retired. And I’m in the middle of teaching the U.S. survey course as a young rube, new to the college. And I see this guy walk into the back of the room, older gentleman, and sit down. I’m thinking, “What’s going on here?” And here, it’s Kyle Montague, who decided to drop in on my class, I guess check up on me. It’s funny, when alums our age or a little younger talk about Gustavus and professors then, it makes me a little envious because I have to say, today, it seems to be much more about … And I understand it’s important [inaudible 00:07:52] self-esteem building. I joke if I were to behave the way McRostie and Montague behaved, I’d probably be called into the dean’s office, but there’s something to be said for it, right? You learn.
Charlie Kelley:
Oh, absolutely. I had an English teacher at Minnetonka who was the same way. There was a little bit of fear when you went into his room every day, but when you came out, you were a better person.
Greg Kaster:
Yeah, I had the same kind of experience in high school. One course, I thought I was such hot stuff, and I wrote this paper and I thought it was great. I think it was an econ course. It came back a D. I was like, “Oh, okay.” That was a wake-up call. And my wife tells the story of, I think it was at Bard College, one of her professors writing on one of her papers, “Is English your native language?” You can’t imagine doing that today.
Charlie Kelley:
Yeah, Boomer, Kyle, used to come out to our hockey games. He’d go to our hockey games, and he’s sit out in the snowbanks and watch us. It was wonderful, that he was giving to us as much as we were trying to give to him.
Greg Kaster:
Yeah, that’s right. And that’s still true at Gustavus. I mean, that’s one thing I love about it. I didn’t attend a liberal arts college the way my wife did, but I do love that about a small, liberal arts college, where it’s much more than just we see students in the classroom now, we see them in all kinds of venues, including athletics. The other thing I wanted to talk about, you mentioned snow. You were telling me before we started recording about a great winter storm. And you want to tell us that story? Was it ’70 … What year was that? The great [crosstalk 00:09:33]
Charlie Kelley:
I’m not sure. It was ’73 or ’74, or somewhere like that.
Greg Kaster:
Sometime between ’71 [crosstalk 00:09:37]. Okay. So yeah, tell us a little bit about what happened.
Charlie Kelley:
Well, you have to realize that the college campus environment was being shaped by what probably happened from ’68 to 1970 with the civil rights movement and Vietnam. It was a very liberal time on campus. We had a blizzard, and the whole parking lot between what we called coed and the mall, all the cars were just covered with snow. And you couldn’t see a single car in there. And the campus was closed down for, I think, two or three days. And I think even the food service was closed. And so, we always made our way downtown, and we had taken some trays from the cafeteria and slid down the hill to St. Peter. And I think we bought a couple of kegs of beer and put them back on the trays and pushed them back up the hill, and I think we were fine until the snow melted.
Greg Kaster:
Well, it’s nourishment, of some sort. [crosstalk 00:10:36] That’s amusing.
Charlie Kelley:
Yeah, we had a lot of fun.
Greg Kaster:
That’s a great story, because today, not just Gustavus, college campuses are so concerned about alcohol consumption, for good reason. But I was mentioning to you again before we started recording, my wife and I … when Kate and I came to Gustavus in the history department, we had come from Boston University. And we came in ’78. And I’ll never forget what was served at all the meals. You could drink water, or you could have your choice of whole or skim milk. And I thought, “This is [crosstalk 00:11:12].” Even as a graduate student, I was used to going to faculty dinners where wine was served. At least wine is now served at dinners [crosstalk 00:11:20] so we’ve come along.
The question I have for you too is, I mean, it’s one thing to know what you want to major in. Did that major lead logically to you going into the financial sector? Again, is that something you knew you wanted to do, let’s say, by your senior year? Or how did you wind up getting into that area of work?
Charlie Kelley:
It’s interesting. I remember taking classes on monetary and fiscal policy as part of the economic degree. And I loved to understand how the Federal Reserve worked and government worked, and how the two policies intertwined and are separate, to some respect. So, the spring of my senior year, I wrote letters to all the major banks corporations in downtown Minneapolis. And I got one back from First Bank Systems. Well, at that time, it was First Bank. And they said, “Come in for an interview.” So I went in for an interview that spring, and I was fortunate enough to be hired.
Greg Kaster:
And what were you doing at that … Let’s see. So, that was straight out of college, right, I mean, straight out of Gustavus?
Charlie Kelley:
Yes. So, I am what, 21 or 22 years old?
Greg Kaster:
Yeah, yeah.
Charlie Kelley:
I remember my father taking me to buy my first suit ever, where he used to buy his suits. And I was in what they call the dealer finance area of First Bank. And the dealer finance area did two things. One, they did the inventory, loaning to car dealerships to have the cars on their lots. And two, they collected on loans. So, a good part of our job, and this is what probably makes a lot of people laugh, is that I repossessed cars.
Greg Kaster:
You were a repo man, or were.
Charlie Kelley:
I was a repo man. You bet.
Greg Kaster:
I mean, what did that literally mean? I mean, you didn’t go out and do it, did you? Or you did the paperwork, or were you actually going out and seizing the cars?
Charlie Kelley:
We had people internally in the bank that would do the paperwork. I was outside. And I would go and knock on people’s door and say, “I need $500 in cash, or your car keys.” And there were some nights I spent in the back of police cars, even though we had total right to the car. The police officers would say, “Not on my watch, you’re taking this car.” So, there was another Gustavus grad working. He was a couple years ahead of me, Rob Linner. I don’t know if you’ve run across Rob. [crosstalk 00:14:09] He was in the same group. He had North Minneapolis, I had South Minneapolis and all of St. Paul. And typically, we’d play golf during the day and steal cars at night.
Greg Kaster:
Gosh, I don’t know. How did that shape you, do you think, if it did? I mean, what lessons did you take from that experience, if any, besides that maybe you didn’t want to do that for the rest of your life, I assume?
Charlie Kelley:
I think it was probably the most informative part of my career, by far, those six months. Here I was, a kid that just came from a liberal arts college, a white kid, and here I am knocking on doors, typically in the lower socioeconomic end of the scale. And you have to also realize, in 1975, it was the oil embargo, ’73, ’74, ’75, so the economy was in terrible shape. And the amount of people that were low and out and couldn’t pay for their cars, there were a great deal of them. And so here I was, a young, white male, knocking on doors, asking for cash; not a check, cash. And these people had no idea. If they had 50 bucks in their house, that was a lot, instead of 500. And they weren’t going to give up their car. So, it was an interesting time, and I learned how to read people. I learned how to introduce myself to people I didn’t know in a very tense situation. I learned how to control my personal emotions, because I knew they were in a very difficult spot. The bank had put their backs to the wall on their transportation needs. And so, I grew up pretty quick.
Greg Kaster:
That’s a great story, and a great point about how formative that was. Someone might think you’d say, “Oh, I couldn’t wait to get out of there,” and maybe you couldn’t wait, but that you said that was one of if not the most formative experiences. And everything you just articulated reveals that. And just thinking here as a teacher, it’s one of the things I love to hear, stories like that, because it’s so often the unexpected, right, what we don’t set out to do. You didn’t set out to do that.
Charlie Kelley:
No.
Greg Kaster:
You didn’t set out to do that, so that it would be a formative experience that would afford you lessons probably that stay with you to this day. So, that’s a great and important story, and a lesson in and of itself. And so from there, you went into … Then it was called Norwest, right?
Charlie Kelley:
Yeah. So, I had sent a letter to Norwest, and they had kept it. I was surprised. And they contacted me-
Greg Kaster:
[crosstalk 00:17:02] good letter.
Charlie Kelley:
… in October of 1975, so I had been at First Bank for five months, and said, “We have an opening in the tax department within the trust department of the Northwestern National Bank of Minneapolis.”
And so I’m going, “Well, winter’s coming. Do I want to be outside taking inventory of cars on dealers’ lots, and trying to repossess cars in snow?” I didn’t think I’d want to do that, so I accepted the job at the trust department in the tax area of Northwestern National Bank.
Greg Kaster:
And then, again, you were probably … I don’t know, you were in your mid- to late-20s maybe, at that point, still young.
Charlie Kelley:
23, probably.
Greg Kaster:
23, yeah. Wow.
Charlie Kelley:
Not married.
Greg Kaster:
Oh, you did get married, or you weren’t married?
Charlie Kelley:
One year later.
Greg Kaster:
One year later.
Charlie Kelley:
It was 24, I was married.
Greg Kaster:
To Emily, who also is a Gustavus alum, graduated the same year you did, and who had a long career as an editor for Lerner Publishing, here in Minneapolis.
Charlie Kelley:
Correct.
Greg Kaster:
I want to interview her too, at some point. So, I mean, what do you do? You’re that young. You’re now working for Norwest. And I mean, how much of the learning just is sort of by the seat of your pants? I mean, did they have things like mentoring programs, all of that, that we take for granted today?
Charlie Kelley:
Well, there was no mentoring at all.
Greg Kaster:
Yeah, I didn’t think so.
Charlie Kelley:
You had to gravitate to the people that you thought could help you. And if I look back on my investment career in financial service, I couldn’t have started in a better area that tax. People want to know, “How much money can I spend, and how much tax am I going to pay?”
Greg Kaster:
Right, the two basics, yeah.
Charlie Kelley:
And so during tax season, we were probably working 80 hours a week doing tax returns for trusts, for individuals, estate tax returns, gift tax returns, iron ore royalty reports, all sorts of tax forms. And I learned how to read wills. I learned how to read trust documents, and I still use those skills today because I can read them and look for certain words, and if I don’t see them, I go, “Well, you should go see your lawyer, quick. You’ve got to get this straightened out.” Tax law has changed considerably, but the general concepts, the concepts of taxation, have not changed. And those concepts help me immensely today, because we look at after-tax returns and how do you calculate after-tax returns? And after-tax returns differ from state to state.
Greg Kaster:
Right. Yeah, you’re reminding me, making me think of my father-in-law, now deceased; my wife’s dad was a lawyer, but a tax lawyer. That’s what he did in New York City for a firm, and just did that for individuals and groups, mostly corporations, I think. So, the other thing you were doing, and correct me if I’m wrong, you were also managing local nonprofit portfolios, is that right?
Charlie Kelley:
Not at that time. What happened, the reason why I got into nonprofits, mostly at the bank, is that I became an expert in doing tax returns for [inaudible 00:20:39] trusts, annuity trusts, pooled income funds, and I did all the work for the University of Minnesota Foundation. And there was Judy Kirk, who was over there running the University of Minnesota Foundation. So, we got heavily involved with the tax strategy, along with the investment strategy, and then the specific types of trusts. And I even had a couple for Gustavus, some mirror trusts created by some alumni that I did the tax work and the investment management. Well, that morphed into working in a group within the trust department that just managed endowment funds for institutions. So, they moved me into … And this is how I got into investments. I got in through the back door, through the tax side.
So, I ended up with a group that we managed St. Thomas’s endowment, Macalester’s endowments, the Orchestra Hall, Dunwoody, Lakewood Cemetery. So, we had a group of probably … There was three of us, and we probably had about a hundred clients that we were managing their endowment funds.
Greg Kaster:
Wow, what an experience. I mean, geez.
Charlie Kelley:
And so, what was beautiful about this was you go to these meetings, and you’re meeting with the finance committee with St. Thomas or Macalester or Orchestral Association, and they’re all the well-known people of the Twin Cities. And here I am, 27 years old, and I’m at the table with these people. And I guess the best story I have here is I was given the Boys & Girls Club endowment to manage. It was not very big. I think it was a million or two million bucks. They only had two people on their investment committee, and one was Carl Pohlad and the other was Raymond Plank. And Raymond Plank started Apache oil, which became, I think, about a $45 billion company. So, I go walking into Carl Pohlad’s office. I’m 26 years old, and I’m going, “Oh my gosh.” Well, I think I used a different word.
Greg Kaster:
Yes, sure.
Charlie Kelley:
Mr. Plank and Mr. Pohlad are sitting at the table, and I had my endowment, I had my investment returns. And they looked right at me. They didn’t ask me one question about performance of the account. They wanted to know my vision for the future and how I was positioning the portfolio to capture that vision. It changed my whole life, from the investment point of view.
Greg Kaster:
What a lesson. You go in thinking, “Well, they’re going to ask about performance.” No, no, no, no.
Charlie Kelley:
No. These people weren’t hindsight people. These people were foresight people. The reason why they got to where they are is their vision of the future, and willing to take the risks to bet on their vision.
Greg Kaster:
And Pohlad, he owned the Twins at that point, too?
Charlie Kelley:
Yeah, but he made all his money in banking.
Greg Kaster:
In banking, yeah. That’s what I thought. So, you’re raising a question I wanted to ask you, and this maybe is the place to do it, the time to do it, you’re an entrepreneur, really, because after this, we’ll get into this, as I mentioned in the intro, you found Compass, your own investment company or finance company. But what do you think it takes to be an entrepreneur? Is that one of the things, for sure, that vision, that looking forward? What else?
Charlie Kelley:
I don’t think there’s any doubt about it, that it’s all how you see the future. [inaudible 00:24:39] talk about two other attributions, and one is that you have to be an optimist. If you’re not an optimist, you’re not going to make it.
Greg Kaster:
That’s a good point.
Charlie Kelley:
And the other part of it, you have to be a capitalist. I’m sorry. You have to believe that you can make money doing this.
Greg Kaster:
Yeah. I come to you for financial advice, and you tell me, “Well, you’re not going to make any money.” So yeah, no, right.
Charlie Kelley:
Right. [crosstalk 00:25:12] An entrepreneur has to be an optimist, a capitalist, and a risk-taker. And he’s got to have some vision. When I started my company in 1988, I remember coming in with my three other partners, and the first day, we looked at each other and said, “What did we just do? Quit our jobs to start” … We didn’t have a single client. And you’re going, “Well, you better get going. You better start the hustle.”
Greg Kaster:
The hustle, right.
Charlie Kelley:
“And away you go.”
Greg Kaster:
Yeah. I sometimes wonder, my dad was a hairdresser, worked for a company here in Minneapolis for a time, a big company then called Maxim’s, M-A-X-I-M-S, located in the Foshay Tower. They had salons in department stores like Carson Pirie Scott. But my dad also was an entrepreneur who established a lot of his own salons over the years. And yeah, it’s funny, that point about optimism is really important, I think, and something I remind myself even now, if I’m feeling sort of down about the pandemic at times. But the ability to just be focused on the future and be optimistic. And that was kind of hard in my dad’s case, because he was also Greek, and it was [crosstalk 00:26:30] fear of tragedy, and something. But I think that’s a really important point.
And then the historian in me, studying … reading about; I can’t stay studying, but reading about 19th century so-called self-made men, and women, sometimes. I mean, the way they would … They might rise and fall and fail and start over. I think that optimism is really, really important. I’m curious, so you started Compass in ’88. Let’s back up a little bit. Why did you leave what was then, I guess, Wells Fargo?
Charlie Kelley:
Well, I left Wells Fargo in 1988, and I was 35 years old. I was married. My kids were five and three. My wife was working, and I think my whole wife’s salary was going to daycare. It’s probably the same true today. I understand that daycare’s pretty hard. But it was the structure of an old bank trust department. We already had a chief investment officer, and he really didn’t listen to the younger people that are within the investment function within the bank. And also, the rigidity of it all. My kids, I wanted to be involved in their lives. If you bring kids into the world, I’m a true believer you should be heavily involved with their lives, to shape who they are. I know my parents were. So, I wanted to coach Little League baseball, football, swim lessons, golf, hockey, and so forth. And I just remember going up to my boss’s secretary and saying, “I have to leave at 3:00 to go coach.”
And she would say, “Well, that’d cost you a half a day’s vacation, or a day’s vacation.”
And I’d just look at her, and I’m going, “Are you kidding me?”
So, it was really the bureaucracy of it all, and the loss of independence and what was important in life. And I was willing to risk everything, including my life savings, in getting the business started, to see if I could do it. I guess I believe in myself. My self-esteem must have been high enough that said, “If it fails, I’ll be able to get a job somewhere.” But it didn’t fail, so I didn’t have to worry about that.
Greg Kaster:
No, far from it. And I think that point about self-esteem or confidence is also another ingredient. I mean, it’s related, obviously, to the optimism and the risk-taking for sure, obviously. So, did you have founding partners, then? Were they also from Wells? Were they joining you from there?
Charlie Kelley:
Three of us all resigned on one day. And they weren’t happy with that. It’s turning the blind eye. They should have realized something. The young people that are eager, they want to move ahead, and you better keep them on track, or they’re going to go.
Greg Kaster:
[crosstalk 00:29:38] definitely.
Charlie Kelley:
And I don’t think there’s any difference today. I mean, it’s the same thing today.
Greg Kaster:
No, no. I think even in academia, in its own way. So, had you discussed this with Emily beforehand, and she was supportive, I assume?
Charlie Kelley:
Absolutely. I mean, as you know, being married, it’s a partnership, and it’s a very tight partnership-
Greg Kaster:
That’s right.
Charlie Kelley:
… and things are discussed and decided on mutually.
Greg Kaster:
That’s right. No, I mean, that is marriage. My wife and I, we sometimes call each other pal, or partner, even. It’s true. So, why did you call it Compass?
Charlie Kelley:
That is really an interesting question. So, we’re trying to get together all the three of us, four of us together. We’re down in the basement in my partner’s house, and we had a beer or two, and we’re trying to come up with a name. And our beer bottle fell over on the table and spun around. And we’re going, “God, how about Compass, where we can help people find the right direction of where they want to go? We can help navigate them through the financial markets and through what their needs might be, and through the risks and returns, and also educate them.” So, that’s how it started-
Greg Kaster:
That’s a great story.
Charlie Kelley:
… a beer bottle falling over on the table.
Greg Kaster:
I was just thinking, beer figures in your life in some important ways, maybe especially [crosstalk 00:31:09]. I mean, are we talking just a little bit about the company and its mission? I assume you’re managing like, what is it, a billion or more than a billion? I mean, I can’t imagine how much-
Charlie Kelley:
Now, I think we’re 1.7, 1.8 billion, something like that.
Greg Kaster:
Okay. And is it mostly … or is it a mix of individuals and organizations? How does it work?
Charlie Kelley:
I would suspect, well I know, that the majority of our clients are individual, but the majority of our money is institutional.
Greg Kaster:
Institutional, okay.
Charlie Kelley:
The institutional money are just bigger pots of money than what the individuals have. So, we have about 14 employees.
Greg Kaster:
14, wow. I mean, this is a huge sector, right, a huge industry. What do you think makes Compass distinctive? What makes it stand out, in your mind, from other, similar firms?
Charlie Kelley:
Well, that’s quite interesting. It’s really changed since 1988. In 1988, most investment management firms bought and sold individual stocks. Today, registered investment advisors, which we are, use mutual funds or ETFs. Well, we have stayed with individual stocks. So, we have been managing our investment style the same way for 32 years, and nothing has changed at all in regards to it. And so what’s unique today is that there are hardly any investment managers out there that buy individual stocks and follow individual stocks. You mentioned earlier, chartered financial analysts, that’s a CFA. It’s a three-year program. You take a six-hour test once a year, and I think the pass rate, first year level, is like 30%. And I think the second year level might be 60%, and the third year level might be about 52%, or something like that. I mean, it’s really a rigorous process. In fact, my son, who worked on Wall Street for nine years, said, “That’s the gold standard, is the CFA program, instead of a master’s in business.”
So with the CFA program, you learn how to analyze stocks, and the attributions of stocks, and how their attributions might be fit together with different types of other stocks to create a portfolio. So, that’s what’s unique to what we’re going for.
Greg Kaster:
Yeah, that’s interesting. I did not know that about Compass. And you’re right. I mean, yeah, you think about front line, I’m thinking about big firms like Fidelity, but even not-so-big firms, right, they’re managing … I don’t know what it’s called. They’re just managing funds, right? Mutual funds, is that right? Yeah. Well, that’s [crosstalk 00:34:02]
Charlie Kelley:
I think what you have to understand, Wall Street is not there to make the individual investor wealthy. Wall Street’s there to make themselves wealthy. And so, whatever they can sell to the individual and they can make money on, might not be in your best interests. And this is the whole fiduciary standard that we’re trying to get to, and the SEC’s been working on it, is that who comes first? And in our mind, it’s always been the client comes first. We are a fiduciary, a registered investment advisor is a fiduciary [inaudible 00:34:38] SEC’s eyes. Broker-dealers, in some regards, aren’t.
Greg Kaster:
Yeah. I mean, and that’s fairly recent, right? Is it a law now, or a ruling?
Charlie Kelley:
For the SEC, it’s some regulation. But we’ve always been under the fiduciary, because the bank trust departments are [inaudible 00:34:58] control over the currency, and they are considered a fiduciary. So, you’re always working in the best interests of your client.
Greg Kaster:
Right. I have learned, in looking for a financial analyst, to make sure they’re not making money off you, that that’s not the primary goal, and that’s-
Charlie Kelley:
Well, we try to make money.
Greg Kaster:
You want to make money, right, but you also want to serve your clients’ interests at the same time.
Charlie Kelley:
That’s right. So, our fees are tied to the market value of their portfolio, so if their market value goes up, our fees go up. If our value goes down, our fees go down, too.
Greg Kaster:
Right. Yeah, I couldn’t remember the phrase, the fee only. That’s what I [crosstalk 00:35:38] fee only, yeah. So, it’s amazing. Yeah, you started that in 19 … So, the company is about, what, 30-
Charlie Kelley:
Two years old.
Greg Kaster:
… two years old, yeah. So, let’s talk a little bit about the Hong Kong program, which is just fantastic. So I don’t know when, it was a couple of years ago, I heard these two … You were there, too. I didn’t get a chance to speak with you, but I was invited to a dinner by the chair of the economics and management department, and enjoyed so much listening to the two students who had traveled with you, and maybe Emily, as well. I think you had two women students who had traveled with you to Hong Kong. [crosstalk 00:36:12] So, tell us a little bit about the origins of the program. What led you to sponsor it?
Charlie Kelley:
Well, Gustavus, like every institution, always goes back to their alumni for some fundraising. And so, I had been helping. I think I made a donation to the new football stadium and made a donation to the renovation of the Roberts hockey rink.
Greg Kaster:
Thank you.
Charlie Kelley:
But a lot of the money that I gave, even though I’m on the investment committee now, kind of goes out and floats away. It just gets put somewhere. And I felt, “Well, I’m not seeing a return. I’m in the investment business. I want to see a return on my assets.” So, the two Kathys at the school-
Greg Kaster:
Oh, Kathi Tunheim and Kathy Lund Dean, right.
Charlie Kelley:
Right. I approached them at … I think was the Swedish Institute in Minneapolis. I got invited to a program, and I suggested to them … Because I had been to Hong Kong two or three other times. And about two years before that, I had taken my whole family to Hong Kong. And my son worked on Wall Street, so he set up meetings with his connections in Hong Kong, venture capitalists, and so forth. And we would sit and speak with these people for about an hour, and God, I just loved it. And so, I thought about it, “Gosh, it would be great if I took two kids from Gustavus here every year, and we set up meetings with property management entrepreneurs, venture capitalists, et cetera, and expose them to the world.”
So, I approached the two Kathys, and they got excited about it. And then we ran into the administration of the school. Well, as far as I realized, they had never allowed a non-professor to take kids overseas, and maybe even out of the state of Minnesota. I don’t even know that. And so, we started working through it, and we did a background check with … I don’t know who they hired to do a background check on who I was. And I must have passed, and we finally got the okay, and so-
Greg Kaster:
They look at your grade point, probably.
Charlie Kelley:
That wouldn’t have done it. And that’s another whole correlation. It’d be interesting to correlate grade points to life, at some point.
Greg Kaster:
Oh, yes. Oh yeah, it would be.
Charlie Kelley:
So, I didn’t want to be involved at all in picking the two kids out, because I didn’t know the kids from Adam.
Greg Kaster:
Right. Sure, yeah.
Charlie Kelley:
And Sheng Yang in the economics department took it upon himself-
Greg Kaster:
Chair of the department.
Charlie Kelley:
… Yeah. Took it upon himself to put together a little application. And so, the first year, I said, “Well, I’ll take a couple boys this year,” and Kathi and Kathy raised their eyes, and I’ll said, “I’ll take two women next year, and we’ll just rotate back and forth.” And so, I took the two boys over there, and it was phenomenal. I mean, most of the kids that I take, and I’ve taken 12 kids over there now, six different trips, most of them haven’t even been outside of the United States. And first of all, we fly out of Chicago to Hong Kong nonstop, and that’s, I don’t know, 17 hours in the air. And you take off in the light, the sun goes down, the sun comes back up, and the sun goes down as you’re coming over Siberia down into Hong Kong through China. And then we land at 7 at night in Hong Kong, and we take a hotel vehicle from the airport into downtown Hong Kong. And all you have to do is watch their eyes.
Greg Kaster:
Yeah, I was just thinking that, literally just thinking that.
Charlie Kelley:
Because the IDS, which is at 52 stories, that’s a small building. And I would suspect there’s hundreds of buildings in Hong Kong, 60 to 80 stories. And mostly, they’re all apartment buildings. So, it just fills my heart to watch these kids. And we get to the point at the end that they can navigate the subways. I tell them, “At night, I go to bed early, and you guys are old enough, you can go out on the town. I don’t care, but just stay together.” And it’s a wonderful thing to watch them grow up. I mean, to be able to navigate the subway system in Hong Kong is just … If you think JFK or O’Hare is confusing, well, you get down underground, and the city of Hong Kong just expands by a lot underground.
Greg Kaster:
Yeah, it’s so true what you’re saying about the growth; I mean, the rapid growth. Are you there for days or weeks, or how long are you there?
Charlie Kelley:
We’re usually there for about six, seven days.
Greg Kaster:
Okay, yeah. And I know they do … Do they sort of shadow you in the fall before the trip, or do they come to your office?
Charlie Kelley:
Well, what I do is I typically meet once a month with them, starting in September, to introduce myself. I have a book, The History of Hong Kong, that I give to each one of them. Hopefully, they read it. I don’t know if they do or not, but hopefully they do. Hong Kong has some fascinating history with the British, and the Opium Wars, the two Opium Wars that occurred in China. And so, understanding that culture and why Hong Kong is there. And up to 1999, it was part of the British Empire, and the turnover, and why the last two years have been very interesting in Hong Kong.
Greg Kaster:
Yeah, no kidding, the democracy movement.
Charlie Kelley:
I typically get together once a year with all of my alumni students, and I just email them. It’s usually between Christmas and New Year’s. At our house, we just have a party, and it’s amazing how many of them are getting married. Some of them are having kids. And it’s fun to watch them and how they progress in their jobs and their careers, as well.
Greg Kaster:
Yeah. Well, you’re enjoying one of the great rewards of teaching. That’s what that is. There’s nothing I … I shouldn’t say nothing, but there’s very little I love more as a professor than getting together with alums. It’s a pleasure to watch them grow during their four years at Gustavus, but then to also see them growing and just blossoming in all kinds of interesting ways after Gustavus is really a pleasure. I think what you’re saying about the subway, just for example, is so important; the growth, the confidence. I’m thinking for me, it was going to Mexico as an undergraduate, a junior, with my then-girlfriend, who was fluent in Spanish. But that was absolutely transformative for me. We were studying, so we were around people who spoke English, from people from the U.S., but we were also in a really small town.
I fell in love with Mexico. This was in Central Mexico. And my time in Mexico City, oh my God, I mean, that just reinforced all my love for cities. That was the first time I realized in my life, I was probably 20, 21, maybe 20 years old, where I was alone for an extended period of time in a city, in a major world city. And just, God, I loved it. I loved every part of it. And thinking about the first time I navigated the subway in New York City, “Wow, this is amazing. I’m so proud of myself.” But beyond that, what do you do with the students in Hong Kong? I mean, these students, I could see it in their eyes when they were making … and in their voices, and certainly the photos, making their presentation about the trip. Tell us a little bit about what they do during the day.
Charlie Kelley:
Well, I think more important than meeting all the people that we meet was our interaction, just the three of us, each day. I’m the first adult in their life, the way I look at it, that doesn’t have any authority over them. I’m not their parent. I’m not a high school teacher or coach. I’m not their pastor, and I’m not their professor at Gustavus, but I’m this adult. And I have been flabbergasted by some of the questions they ask me. And I think they ask these questions because I’m no threat to them. I don’t have any control over any outcomes in their lives. So, sitting around having a beer at night, the questions that are asked about the future, what to expect in relationships between different sexes, you just sit there and you shake your head. They’re afraid to ask some of these questions of their parents or these professors or [crosstalk 00:46:13]. And yet they just, bam, they open up.
Greg Kaster:
Yeah, that must be … So, can you say a little bit more about, without violating anyone’s privacy, some of the kinds of questions they ask?
Charlie Kelley:
The relationships between male and female are a big topic.
Greg Kaster:
Do they ask about the work world too, or not?
Charlie Kelley:
Yeah, and how that interaction between male and female works in the workplace.
Greg Kaster:
Yeah. Oh, that’s interesting. Wow.
Charlie Kelley:
Yeah. And they’re so focused on trying to get a job. I worry about that sometimes.
Greg Kaster:
Yeah. Were you that way? I was not that way. I mean, I was a history major. I didn’t know what the hell I was going to do. But do you remember, were you that focused on, “I need a job. I’m going to” [crosstalk 00:47:06]
Charlie Kelley:
Well, I just remember when my father told me, “When you graduate from Gustavus, the water’s turned off.” And I knew what that meant.
Greg Kaster:
You were [inaudible 00:47:19]. But yeah, I worried about it, too, in all seriousness. You remind me, my dad knew I was going to graduate school and sort of said, “Well, I’ve got a five-year plan for you. You’ve got five plans.” I took a little longer, but he was still supportive. But I do worry about that also. I mean, a lot of us do, as professors, not just at Gustavus, where young people, they feel or their parents feel that their kids have to have it all figured out from day-
Charlie Kelley:
That’s right.
Greg Kaster:
… day one. And that’s just not true, right?
Charlie Kelley:
No, no.
Greg Kaster:
Even in your case, even though maybe you knew what you were going to major in early on, you didn’t know you were going to do repo work for a time-
Charlie Kelley:
That’s right.
Greg Kaster:
… and that that was going to be such a formative … You didn’t know you were going to be developing a program in Hong Kong. So, I always tell the students, just be open; not just open-minded, but open to opportunities. And it’s okay if you don’t have everything all figured out. Even as a senior, it’s okay. It’s a hard message to sell, I understand.
Charlie Kelley:
I work on that message, as well. And one of the things that we work on when we’re in Hong Kong, for an investment person, I think one of the greatest skills is the art of observation, observing what’s happening around you.
Greg Kaster:
You just made my day.
Charlie Kelley:
And when I go into a city, whether or not it’s in Europe or Asia, how many cranes do I see in the sky? How many buildings are being built? What kind of cars as being driven? What are people wearing? What kind of shoes? All these things, I have developed my ability to observe, and so I try to get the students … We come back every day and sit down and I say, “What did you see? Just tell me what you saw.” [crosstalk 00:49:11]
Greg Kaster:
Yeah, go ahead.
Charlie Kelley:
And developing that skill of observing, no matter what it is in life, whether or not you’re a duck hunter and you’re seeing all the ducks go down that way, and you’re going, “Why are they going down there,” and trying to figure it out, it’s going to last you a lifetime.
Greg Kaster:
I mean, you literally just made my day, I’m not kidding, because one of the questions I was going to ask you is, I suppose if you’re hiring someone for your company, for Compass, having a background in economics is important, but again, sometimes students think, “I must have this major to do this.” And what you’re describing as an incredibly important part of what it means to be not just a learner, but in your particular line of work, observation. That doesn’t come from any one major, right?
Charlie Kelley:
No.
Greg Kaster:
That can come from your educational experience and your own upbringing, and I think that is so important. When my wife and I took … Years ago, we took Gustavus students to England, and it’s one of the things we stressed, to just walk around the city with your eyes and ears open-
Charlie Kelley:
Absolutely.
Greg Kaster:
… and observe. Yeah, it’s incredibly important.
Charlie Kelley:
You have to understand the different cultures of the world. They interconnect, these different cultures. We meet with a woman in Hong Kong. She’s French, she’s my age. She is your typical French woman, just [inaudible 00:50:44] bright woman, but she’s a money manager, and she works for a Boston money management company, running a Chinese stock mutual fund. And I’m going, “Wait a minute. You work for an American company, you’re French, and you’re buying Chinese stock.” It’s a wonderful world. It’s just unbelievable, what’s out there. And you just got to get out and enjoy it.
Greg Kaster:
Right, that’s where the global perspective and the travel, also important. I am proud that so many Gustavus students are … And that we have affordable opportunities too, including yours, to travel. The other thing, I don’t want to end without you saying a little bit about your work for Pride in Living. Not everyone listening knows about that organization. It’s important. My wife volunteers at the House of Charity here in Minneapolis, in the food shelf. But tell us a little bit about that organization, if you would, and what got you involved in it.
Charlie Kelley:
Well, I got involved with … A good friend of mine was involved, and he said, “This might be something that you might be interested.” Our headquarters is down on 28th or 29th, Lake Street in Chicago. I mean, it’s right down, 14th and Lake. And it helps the socioeconomic people that need some help. We do housing, we do vocational training, we do development, and we run educational programs where we can teach a vocation. And it’s been going on, boy, I bet you for 30 years or so, with Project Pride in Living. And what we’re trying to do is work on the self-esteem issue.
This self-esteem issue in some of the lower socioeconomic classes is very difficult. They have a very difficult time on how to build self-esteem, and that comes through education, and trying to educate so they feel good about themselves. And so, it’s been a wonderful part of my life to be involved with it. One of my partners, Leigh Niebuhr, is I think the treasurer of the PPL right now. And that’s another thing at our firm, we want people involved. There’s work, and then there’s home, and then there’s giving back.
Greg Kaster:
That’s great.
Charlie Kelley:
And you have to do all three. So, we give people a lot of leeway on the work structure for both home and for community. And we want our people to be well-rounded. In my mind, there’s a huge separation between home and work. My home has always been my sanctuary from work. It isn’t today.
Greg Kaster:
Yeah, exactly.
Charlie Kelley:
But I can’t wait to get back to it. But the separation of work and family is very important, and I don’t think a lot of people spend enough time on thinking about that.
Greg Kaster:
Yeah. Boy, again, now I want to ask you just one more question, if you have time, but just what do you think about that? I mean, I can’t wait to get back to my office, either. I can’t wait. But there’s all this talk about predictions, and that’s all they are at this point, but more and more people will be working at home, even once the pandemic ends. Do you have any thoughts about that? I mean, I agree with you, I don’t want to work at home. I want to get out of my house, and separate work and home.
Charlie Kelley:
I think that it’s overblown. I know all 14 of us can’t wait to get back together. The cultural aspect of a company or a corporation is so important, and the culture comes from hiring the right people and being together and respecting each other, and respecting each other’s view. And also, that includes disagreeing, but you do it admirably, and you learn from each other. And I don’t think that’s occurring right now. That’s [crosstalk 00:55:09]
Greg Kaster:
Yeah, I agree. Yeah, I mean, it can occur to some extent, I guess, online, but it’s definitely not the same.
Charlie Kelley:
No.
Greg Kaster:
That’s what I miss the most. I miss just the casual conversations over coffee and in-person. Yeah, we shall see.
Charlie Kelley:
Well, going to lunch with-
Greg Kaster:
Exactly, right. That’s right.
Charlie Kelley:
[crosstalk 00:55:29] the simple things.
Greg Kaster:
Yeah, simple things. And I agree with you, I think it’s overblown, as I think the predictions about the sort of decline of cities are overblown, as well.
Charlie Kelley:
I agree. I’d like to-
Greg Kaster:
Yeah, Charlie [crosstalk 00:55:40]
Charlie Kelley:
… leave you with one last thing.
Greg Kaster:
Yeah, please.
Charlie Kelley:
When we hire people, we always hire the person first. We can always teach technical skills, but I cannot change what your parents gave you. That’s permanently ingrained in who you are. And that’s the hardest part about interviewing, is find out who the person is.
Greg Kaster:
Right, and you’re … Boy, that’s a great place to end because, again, it comes back to our message about, yes, majors are important, but what you major in doesn’t decide the rest of your life, right?
Charlie Kelley:
Correct.
Greg Kaster:
Far more important is, what kind of person are you? What kind of person are you because of your parents, your experiences, and your education, whether it’s at Gustavus or any other school, I think is so important. And it’s great; when students hear you say it as opposed to their professors say it, it makes a big difference. So Charlie, this has been an absolute pleasure. We have not yet met in person. I hope we can do that. I know we will be able to do that. I look forward to that very much. Thank you and Emily for your generosity, for all that you do for Gustavus and for PPL here in Minneapolis. And yeah, here’s to getting back to our respective offices as soon as we can.
Charlie Kelley:
Yeah, I concur.
Greg Kaster:
Take good care. Thank you so much.
Charlie Kelley:
Thank you very much. It’s been my pleasure.
Greg Kaster:
Yeah, thanks. Bye-bye.
Charlie Kelley:
Bye.
Greg Kaster:
Learning for Life @ Gustavus is produced by JJ Akin and Matthew Dobosenski of the Gustavus Office of Marketing; Gustavus graduate Will Clark, class of ’20, who also provides technical expertise to the podcast; and me. The views expressed in this podcast are not necessarily those of Gustavus Adolphus College.