Sox and Bonds

mag-sp17-varelas

Chris Varelas '85 has a passion for sports, a knack for structuring complex technology deals, a loyalty to his Oxy family—and the uncanny ability of being at the nexus of history

By Dick Anderson | Photos by Jim Block

Chris Varelas '85 has witnessed some amazing moments firsthand. When a ground ball off the bat of the New York Mets' Mookie Wilson rolled through the legs of the Boston Red Sox' Bill Buckner in Game 6 of the 1986 World Series, Varelas was there. When quarterback Vince Young led Texas to a comeback victory over USC at the 2006 Rose Bowl—the highest-rated BCS game in TV history—Varelas was in the stands with a Longhorns contingent, playfully taunting Trojans superfan Snoop Dogg. When Vladimir Putin pocketed a Super Bowl ring belonging to New England Patriots owner Robert Kraft during an excursion of business leaders to Russia, Varelas worked to smooth over the matter.

And when five of the 10 biggest revenue deals in the history of Wall Street went down, Varelas was in on the action: As Citigroup's global head of technology, media and telecom investment banking, Varelas and his group of 250 bankers ranked first in 2005 in mergers and acquisition deals and fourth when ranked by deal value, according to Thomson Financial.

"Chris is an amazing storyteller—he's very bright—and he knows how to put business deals together," says Tom Geiger '85, a friend since their Oxy days and a business partner since they bought and rehabbed a number of apartment buildings in the mid- to late-1990s. "When you put that combination together, that's why he's been so successful."

At the outset, Varelas says, he envisioned his career in four steps: "I'll work on Wall Street for 10 to 15 years, in corporate America for 10 to 15 years, in politics for 10 to 15 years, and then I'll go to academia."

Varelas wound up staying on Wall Street for nearly 20 years before leaving to found Riverwood Capital, a private-equity firm focused on high-growth technology and technology-related companies, in 2008. He's also scratching his teaching itch through his work with the Aspen Institute, founding the Aspen Finance Fellows program to produce effective, enlightened leaders in the financial services industry. In addition, he's writing his first book, a layman's guide to the changes in the financial services industry over the last three decades.

All that leaves, really, is for Varelas to run for elected office—and experience  suggests that he would be successful at any undertaking. "Chris makes friends anywhere he goes," says Gary Skraba '87, who has known Varelas since he was a first-year and Varelas was an RA in Stearns. "He has a great ability to read people, start a dialogue, and make them laugh in any situation."

The middle child of Greek immigrants, Varelas grew up in Springfield, Mass., and moved with his family to Anaheim Hills when he was 15. While he intended to go back East to either Williams or Wesleyan, he visited Oxy on a whim, "and I really felt a connection to the school. At the last minute my gut said to go to Occidental. It did not hurt that it was closer to home." (Younger sister Lea would also enroll at Oxy, graduating in 1988 and later working for Salomon Brothers.)

Although Varelas graduated with a degree in economics, he started college as a chemistry major. "I was going to be premed," he says. "Two things changed my mind." First was a philosophy lecture by Professor Marcia Homiak, who compared Aristotle to the sixth game of the 1975 World Series between the Boston Red Sox and Cincinnati Reds (a 12-inning, do-or-die 7-6 victory for the Sox). "As a big Red Sox fan, I was taken by the use of a famous baseball game to drive home a philosophical concept," he says. Second was the realization that he enjoyed chemistry more in theory than in the lab.

But Varelas started taking economics classes as well—and he found an adviser in a young faculty member named Jim Whitney, who came to Occidental in 1982. "I was one of Professor Whitney's first advisees," he says. Ultimately, Varelas opted for a degree in economics over philosophy "because the graduation requirements seemed more manageable in the face of looking for a job."

As a participant in Collegium (which was part of the Oxy curriculum from 1974 to 1989), "I loved the fact that we studied great concepts through themes. You would pick a subject like tradition and change and then analyze it through the various disciplines of history, literature, even science," he says. "Wharton got me my job on Wall Street, but it was the critical thinking that I developed at Occidental that made me a success."

Varelas' first job out of college was with Bank of America, whose training program was widely regarded as one of the best in the country. After five months on the job, he was assigned to work in the heart of L.A.'s Jewelry District, loaning money to gold dealers and wholesalers, "which in and of itself was an amazing training ground," he says. In the lending industry there's a gauge called the five Cs of credit: capacity, capital, collateral, conditions, and character. "They always tell you how important character is, but in the jewelry industry it's all that matters."

"The jewelry industry is really an industry of integrity. It's the most asymmetric transaction you'll ever do, in the sense that you're actually going to that person who's selling you the diamond for information that you're then going to base your decision on."

After three years with B of A, he enrolled at the Wharton School of the University of Pennsylvania, where he earned an MBA in 1990. When he went to Wall Street after graduation, taking a job with Salomon Brothers on the trading floor, "I assumed I probably wasn't going to survive," he says. "Friends of mine were like, 'I don't really see you there. It doesn't really seem to fit your personality.' I said, 'Yeah, I know. That's exactly why I want to go.' I always would pick experience over probability of survival."

Nearly 20 years later, Varelas was still there. "I got lucky," he admits. "I ended up working on some very high-profile transactions at a very young age, and that helps cement your reputation. Then success in one deal begets the next, and so on and so on."

Varelas' thriving career took a left turn on Dec. 7, 1994, when California's Orange County filed for bankruptcy to the tune of $2 billion—the product of excessive borrowing and risky investments that went south in the face of rising interest rates. The aftershocks were felt throughout the bond market and all the way to Wall Street. Varelas headed up the Salomon Brothers team brought in to fix the investment pool and reinvest the money appropriately—which they quickly did.

"But then what happened was you had this hole in the budget," he says. "All of a sudden, 40 percent of the revenue disappeared and you have all this debt coming due. Our job at Salomon was done, what we were hired for, but I thought this was a great life experience." This raised a larger question in his mind: Why not stick around and try to solve the revenue dilemma? So he did.

As a 32-year-old Salomon vice president, Varelas—who had worked at both Anaheim Stadium (selling peanuts) and Disneyland (as a cafe greeter) growing up—felt a tug of responsibility toward his adopted home. "I was told by many it would be career suicide," he recalls, "and I thought maybe at the time it would be, because I was spending a year and a half working on one project that's not really directly related to what I do. It turned out to be an advantage for the firm and a huge home run for the county, but going into it, I didn't know that."

For the next year and a half, "I felt like I had a hand in running the county," Varelas recalls. "We had to learn about the budgets, revenue, operations, and so then we moved into analyzing all aspects of the county—how we could generate more revenue, how we could repay the debt." He and his team had to come up with a plan that fit the priorities of the citizens of Orange County: "Don't raise taxes, make operations more efficient, use the existing tax base to solve it."

Streamlining the budgets of most departments with the notable exceptions of schools, police, and fire and bringing those funds together, the Salomon team found the money to dig Orange County out of a very giant hole. "Everyone got paid off 100 cents on the dollar with interest," Varelas says.

One additional dividend of his 18-month stint in Orange County was meeting his wife, Jessica, through a friend while living in Newport Beach. The couple was married at her parents' home near Paso Robles in 1998, with the ceremony held in her parents' orchard.

As his work progressed, Varelas' responsibilities at Salomon (which was acquired in 1997 by Travelers Group, which in turn merged with Citigroup in 1998) grew to include becoming head of Citi's national investment bank, a member of Citi's global operating committee, and culture czar (which entailed assessing and transforming the culture for all of Citi).

"I always joked that I didn't change jobs, but the world changed around me," he says. "I never left one job to go to another, but the Salomon Brothers I joined and the Citigroup I left were diametrically opposed firms culturally. One of the reasons I was given all these jobs was that my group was always rated as one with a good working environment in an industry that was not generally regarded as a friendly place to work; people would always say, 'I want to work in that group.' So they kept giving me more and more management responsibilities."

"After 19 years, I had gotten everything I could out of Wall Street," he says. "I liked the job. It was comfortable. It paid extremely well, but I thought 'OK, I got to move on.' So I set out to start a private-equity firm, which then turned out to be the worst time, literally, in the history of the world to do so, because private equity didn't exist during the Great Depression," he adds with a laugh.

Since its founding in Menlo Park in 2008, Riverwood Capital has grown from six partners and a few associates to about 25 investment professionals with offices in New York City and São Paulo, Brazil, as well. "We do a lot globally," Varelas says, "so we spend a lot of time in Asia, Israel, and the technology centers of the world."

A typical investment ranges from $25 million to $125 million per company, and Riverwood has had a stake in one of the top IPOs each of the last three years: GoPro in 2014, Globant in 2015, and Nutanix in 2016. "We've had some big successes," Varelas says. "At the end of the day we're looking to fund 20 or so investments in high-growth technology companies selling into a good market with a defensible strategy.

"A large part of my job is to network in search of great investment opportunities," he adds. Varelas spends much of his time meeting with entrepreneurs, lawyers, bankers, and advisers in the technology sector, as well as the investors who have committed more than $2 billion to Riverwood since the company's founding. "One of the most rewarding things about this work is meeting interesting people with cool ideas that we need to figure out how to bring to fruition."

Varelas joined the Occidental Board of Trustees in 2005 at the invitation of then-President Ted Mitchell and Board Chair Cathie Selleck '55. "I've always had an interest in education, so when I first joined, I did not really want to focus too much on the investment world because it's what I did every day. I was looking for the more diverse experience." Over time, friend and fellow trustee Ian McKinnon '89 encouraged him to join the investment committee. "I saw what a great job he was doing and what value he was providing," Varelas says, so he did.

"Ian deserves a lot of credit for transitioning how the endowment was managed, choosing great fund managers or involving Oxy alumni with key investment skills, and setting the College in the right direction," Varelas adds. "Before his leadership, the endowment took a lot of interesting turns and had some difficult periods."

After McKinnon left the Board in 2012, Varelas was named chair of the investment committee. Since then he has worked closely with fellow trustees and committee members Dave Berkus '62 and Pete Adamson '84. "It's really important that we do well on the investment committee not solely for the returns—because the dollars are important—but also to show that there's a good steward for the investment of the endowment so that people feel comfortable giving money."

According to preliminary numbers for the last quarter of 2016, Occidental's 9.7 percent return on its endowment ranks in the top 2 percent of endowments tracked by Cambridge Associates of San Francisco. That's "pretty amazing," Varelas says, "but you can only do so much to grow the endowment" without additional resources.

A capital campaign geared toward growing the endowment is "critical" for the College, he says, "because we're not going to earn our way to an appropriate endowment level" compared to Oxy's liberal arts peers. "We view the committee's roles and objectives as preservation of the capital needed to run the College, demonstration of prudent stewardship to the Oxy community, and the realization of appropriate risk-adjusted returns. Only by doing all three can we best position the College to raise the funds needed to support Oxy's long-term goals."

One reason Varelas supports Occidental, he adds, is that "As the world becomes more complicated, interconnected, and convoluted, we need many more thinkers to grapple with the challenges that we face. It's great that all of these kids are learning to code, but if everyone's a coder and nobody's a thinker, what's guiding these fascinating technological and sociological developments? I'm a big believer in the liberal arts, for sure."

Varelas' ongoing work with the Aspen Institute began in 2012. The "tried and true Aspen process," as he calls it, takes 22 people a year at a critical juncture in their career and puts them through a program "that we hope will make them more effective, enlightened leaders. I think the biggest thing lacking today is leadership," he adds, "so I really enjoy that process."

Years before that, Varelas began writing a book that looks at 10 major evolutions over the last 30 years "that have made the financial service industry very complicated, almost scary, to the average Main Streeter," he says. The hook is that it's told through his stories: "No one wants to read a textbook, right?"

To that end, Varelas picks a story around each moment that he knows well "as an inflection point," he says. "First of all, we want you to enjoy the read, but then we hope the other benefit is that you say, 'Now I understand the world of finance better.'

"Ever since Occidental, I've been writing almost as a hobby," Varelas adds. "Then a friend of mine who's a New York Times writer and a successful author read it for me and said, 'It's really good.' He gave me the path to make it a book." Now, armed with an agent, a publisher (HarperCollins), an editor, and a collaborator ("at the end of the day, I'm not a professional writer"), he has a September deadline to turn in a full draft, with publication slated for fall 2018.

Where does he find the time? "I need very little sleep," says Varelas, who typically writes before dawn. "For years, I've averaged three to five hours a night of sleep. That extra three or four hours a day adds up."