KKR'S $1 TRILLION GAMBLE

The co-CEOs of KKR have a radical strategy to supercharge growth - and chart a path far different from that of their mentors, Henry Kravis and George Roberts.

- Shawn Tully

IN NOVEMBER 1996, Joe Bae had been working at buyout shop Kohlberg Kravis Roberts & Co. for six weeks as an analyst doing spadework on deals when Scott Nuttall, another recruit, moved into the office next door. Both Bae and Nuttall, who had each worked at big Wall Street firms, soon relished the freewheeling small-group vibe over, as Bae puts it, "feeling like a cog in a large, sophisticated machine." KKR had just two dozen employees and lacked even an HR department. Their bosses were already legends, courtesy of their epic purchase of RJR Nabisco. "Back then, Henry Kravis and George Roberts were the de facto investment committee," says Bae. The process was that after studying the transactions, "you walk into Henry's office, then you call George, and then you talk about the deal." Recalls Nuttall, "We'd have lunch every day with Henry at the end of the table. He'd walk around handing out checks to the assistants when we sold a company, because everyone owned a piece of everything."

"It was an apprenticeship culture," adds Nuttall. "The place was so tiny that whichever one of us was less busy that week would get staffed on the deal. I was the mini M&A department, trying to sell different pieces of Borden, such as Cracker Jack and Elmer's Glue."

Bae and Nuttall, both 24 and recently married, became inseparable. Every evening, they would walk to the nearest McDonald's for takeout and unpack their Big Macs in a conference room while watching the TV news. One summer, the two couples rented a weekend house in Woodstock, N.Y. Since the down-market place came sans trash pickup, they would schlep the refuse to Manhattan on Sunday nights for disposal.