Where is credit due? Financiers decide
Among many themes discussed, a key point for the financiers and advisors on the “Credit Markets: What’s Next” panel was the rich opportunities created when high finance hit a low point in 2008. It was a great time to buy, said Milken Institute ChairmanMichael Milken, who moderated the talk. Since then, we’ve enjoyed a high-liquidity environment featuring low rates, immense corporate cash balances, and relatively few defaults.
What will it look like going forward, though? Marc Rowan of Apollo Global Management, who emphasized his firm’s value orientation, pointedly spoke about the “late-cycle risk” that may be out there. Approaching the question from a different standpoint, David Warren of DW Investment Management and Brevan Howard said the next decade will be a golden era for credit investors, thanks, largely, to Dodd-Frank and other new regulations. They will inevitably force banks to shrink their balance sheets and open space for investors in origination and other activities.
That prediction overlapped with another theme of the get-together: creating financing alternatives to banks in the United States and around the world.
Milken raised the need to build debt markets in China, considering the scale and influence of that economy and the impenetrable ties between the big banks and the big companies, all alloyed and allied with the power center in Beijing. True, there’s a lot of runway in Asia for alternative financing, but transparency and rule of law remain quandaries for investors there. Richard Cantor, who represents credit rating giant Moody’s, noted that his firm is in the “opinion business,” an approach Asian governments may not warm to. Cantor also underscored the perhaps surprising lack of financial infrastructure to accommodate the coming deleveraging of European banks, a situation that Joshua Friedman of Canyon Partners pointed to as a tremendous opportunity.
Near the end, Milken told the story about Alexander Hamilton, America’s first treasury secretary, being told that the fledgling nation’s debt was worth 20 cents on the dollar. Eventually, as we all know, the buildout of industry brought it up to full value. Milken then put a spotlight on the 62 million jobs created between 1970 and 2000 in this country. He posed the fundamental question: How do you help nations grow? His answer, in short: Get capital into the hands of entrepreneurs — which is a bigger job than banks are designed to do.