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Moderator:
Glenn Yago, Director, Capital Studies, Milken Institute

According to former U.S. Senator Gary Hart, "terrorism is a method, not an ideology." Unfortunately, it's a method increasing in both frequency and intensity, with the rise of global interdependence and interconnectivity.

Glenn Yago of the Milken Institute began the session with a synopsis of the economic effects of terrorism, which include depressed GDP growth, the destruction of physical and human capital, and decreases in bilateral trade. He noted that modern history has seen Israel endure approximately 10 percent of terrorist attacks, as well as 10 percent of worldwide terrorist casualties. Al-Qaeda leads terrorist organizations in the number of attributed fatalities and has gradually shifted its focus from political to civilian targets, which foreshadows a growth in terrorism′s global toll.

Sen. Hart backtracked, directing the discussion to the pre-9/11 era, when the Hart-Rudman Commission on National Security in the 21st Century was one of several bodies studying the domestic threat of international terrorism. He described his efforts to create a consolidated federal protective agency to internally defend domestic soil, similar to today's Department of Homeland Security. His juxtaposition of the pre- and post-9/11 American mindset with respect to terror tactics set the tone for the rest of the session.

UCLA Professor and Milken Institute Senior Fellow Michael Intriligator continued the discussion with an economic analysis of the elements of global terrorism. He suggested that the economic outcomes of terrorism were derived from supply-and-demand functions that would remain intact as a result of "substitution theory"; in other words, a clash between defensive action and a perceived demand for terror tactics would simply result in a change in the medium of attack. Innovation also plays a factor, as evidenced in the 9/11 attack, which combined two traditional tactics: suicide bombing and plane hijacking. Intriligator hammered his message home with a frightening fact: Los Angeles, especially the Los Angeles/Long Beach port complex, the biggest in the nation, is one of the country's prime targets.

Moving from economic theory to biomedical and technological application, UCLA Medical Professor Peter Katona explained how tactical convergence with integrated innovation in the form of a biological attack poses the greatest threat. Currently, the American health-care industry is not poised to act in the event of such an attack. Katona furthered his point by reminding the panel that more money is spent on biomedical lawsuits and tort litigations than the actual development of counteracting biological agents and vaccinations.

The discussion turned to practical economics when Irene Kyriakopoulos, a professor of economics at the National Defense University, ran some of the numbers included in the cost of terrorism. Currently, Homeland Security and relevant defense spending totals close to $400 billion; but hidden costs exist in health care and trade deficits.

Yago directed the panelists to the topic of solutions. All agreed that a better understanding of terrorists and terror tactics was needed; ideally, this would be followed by preemptive strikes on financial roots and command structure to prevent future attacks. As a last resort, domestic targets should be hardened to minimize costs and casualties.

Before the close of the discussion, Hart brought up the importance of America's dependence on foreign oil, arguably, the country′s Achilles' heel in the war on terror. He proposed that the country take action to wean itself off foreign oil with either alternative energy or a different supply. After fielding questions, the panelists agreed that the country's fundamental problem with respect to terrorism was the ability to respond, but not necessarily anticipate. Anticipation and understanding will be key elements in the future of the struggle against terrorism and its economic fallout.

Moderator:
James McCaughan, CEO, Principal Global Investors LLC

Responding to Alan Greenspan's recent remarks characterizing low-key bond yields as a conundrum, James McCaughan of Principal Global Investors asserted that with the exception of a brief spike around 1981 -- during which currencies were collapsing and yields were very high -- bond yields have in fact remained more or less stable from roughly 1870 to 1970, at 4 percent or 5 percent. This would indicate that, contrary to a perception of current rates as an anomaly, we are in fact back to normal with a yield curve roughly flat at 5 percent. This is furthermore to be expected, McCaughan said, at the end of a cycle of bank tightening.

If current trends in investment and productivity continue, and he believes they will, McCaughan expects bond yields to decrease to 2 percent or 3 percent within 10 years, as opposed to a rise to 10 percent or even 15 percent that has been predicted elsewhere.

Central to McCaughan's discussion and analysis was the role of demographics, specifically with regard to decreasing fertility rates and increasing life expectancy over the past 40 years. When Bismarck invented the pension plan in the 19th century, McCaughan said, it was a fairly low-value option, offering a pension at age 65, when the life expectancy was only 63. Today, by comparison, more elderly people are receiving pensions and living until 90. Along with this, he argued that inflation has been kept low in the developed nations by now-established households within the demographic structure outlined above.

Audience members questioned the role of liquidity, the validity of current account deficits and the implications of the very recent attack on the U.S. dollar. In each case, McCaughan was confident that nothing needed to, or would change. One listener was skeptical with regard to McCaughan's assertion that inflation is stabilized at around 2 percent to 3 percent, insisting that inflation is a real problem, its real source is government money creation and that "economists should probably be forced to take accounting 101." McCaughan acknowledged the tenacity of this argument but ultimately quipped that "try as we look, it's a bit like weapons of mass destruction: We can't find evidence of inflation."

Moderator:
Betsy Zeidman, Director, Center for Emerging Domestic Markets, Research Fellow, Milken Institute

Corporate foundations face a variety of questions as they formulate their giving strategies: How can they make the most impact with their donations? How can they even measure that impact? Should their giving strategies align with their corporate strategies? What is the role or opportunity for a corporate foundation in driving social change? What role should employees and other stakeholders play in corporate philanthropy? How do they balance their responsibility during disasters such as Hurricane Katrina or the Asian tsunami with the expectations of those relying on their existing programs? What are the implications of new governance requirements affecting foundations? In many cases, the corporate foundations may have different concerns than their counterparts in the private or community foundation world. This private roundtable will enable key leaders in corporate philanthropy to discuss areas of interest, share best practices and identify potential collaborations.

Preregistration for this invitation-only event is required. For information, contact the Events Department at 310-570-4605.

Introduction By:
Michael Klowden, President and CEO, Milken Institute

Moderator:
Michael Milken, Chairman, Milken Institute; Chairman, FasterCures / The Center for Accelerating Medical Solutions

The panelists in the lunch plenary discussed current global challenges, played off each other and the moderator, and engaged in a lively debate about the future of climate change and health care. It was interesting to note that despite their considerable collective expertise, they all confessed to uncertainty over the outcome of these global challenges.

They acknowledged, for example, that climate change is a problem but expressed uncertainty over the exact nature of that problem and its solution. It was noted that worldwide temperature changes have actually not been that dramatic, and that larger changes have actually been recorded at different times in the past. What is unique to the current situation, however, is the sharp increase in the level of CO2 in the atmosphere. Reversing this increase, they agreed, is perhaps the primary challenge the world faces if it hopes to prevent irreversible and potentially hazardous climate change.

The Kyoto Agreement is ultimately flawed, said Gary Becker, because it does not reduce CO2 emissions from the United States, China, India or any other developing countries. As an alternative to attempting CO2 emission reductions, the panelists were enthusiastic about the prospects for technological breakthroughs that might provide a method for reducing CO2 from the atmosphere, where the emissions tend to remain for a long time before breaking down. There is currently a great deal of government and private-sector research in this area.

Becker also proposed increased nuclear energy use In order to avoid fossil-fuel emissions entirely, Becker was a strong proponent for increased nuclear energy use in the United States. Mr. Becker noted that nuclear is a relatively clean and inexpensive energy source, and that many nations are already relying on it to a much greater extent than is the US.

A second significant problem is soaring health-care costs. As a society′s population ages, those costs increase significantly. In fact, the average annual expenditure for U.S. citizens over age 85 is more than $20,000. Additionally, there are fewer active workers to support each retiree, which results in slower economic growth. As a consequence, health-care costs consume an increasingly large proportion of economic output; they currently constitute 16 percent of U.S. GDP and 10 percent of world GDP, and these percentages are forecast to grow rapidly in the future.

One source of hope is that while medicine has high fixed costs, its variable costs are not that great. Therefore, the economic solution to caring for an aging population may involve greater reliance on medication, as opposed to doctor visits or hospital stays.

Not only are global populations aging rapidly, they are also becoming increasingly obese. Since 1980, the percentage of young people in the United States considered obese has soared. In the United States, one panelist noted, many people eat while engaged in some other activity, while in a country like France, eating is considered a primary activity. Plus, in America, portions tend to be 35 percent larger than in France.

In a study discussed at length by the panelists, more than a hundred variables were considered as possible causes for increasing obesity of America′s children. When all other factors were accounted for, it was determined that the principal reason for the increase since 1980 is a seismic shift in leisure activities from sports and other athletic pursuits to video games or Internet chat rooms.

There are no simple solutions, the panel concluded. Instead, a complex mix of government policies, business initiatives and individual choices will be necessary if we are to meet the challenges of the 21st century.

Moderator:
Andrew Rosenfield, Managing Partner, Guggenheim Partners LLC; Senior Lecturer, University of Chicago Law School; Founder, President, CEO, Leaf Group LLC

The panel opened with a few general questions: What is the average investor's perspective on risk? And is it the same as that of the professional?

Some psychological studies show that people tend to treat risk as "danger," which is different from the professional interpretation of risk as standard deviation of the return. People want to feel safe with their assets or equity investments. Daniel Kahneman of Princeton University stated that most people will forgo higher-return, higher-risk investment opportunities in favor of lower but safer returns. In that sense, psychological considerations should be incorporated into financial study. Gary Becker of the University of Chicago agreed that it is important to understand how individuals view the financial market, and its risks and returns.

Some people believe that hedge fund investing is a zero-sum game, which means those who do well do so at the expense of those who do poorly. But Myron Scholes of Oak Hill Platinum Partners disagreed. He thinks hedge fund investment is a positive-sum game, he said, because it does provide some services. And if combined with another investment strategy, it can create solid returns without incurring excessive risk.

Kevin Murphy, also of the University of Chicago, made two important points: 1) It is very hard to evaluate an asset manager′s performance, and 2) when we talk about loss, we must define the term. Is it loss in real terms, loss in nominal terms, loss relative to other investment strategies or loss relative to the investor′s expectation?

All the panelists agreed that it is not unreasonable for some hedge fund managers to receive handsome compensation, even though it is hard to tell whether they are really talented (when one handles funds worth billions of dollars and more, even a small out-performance means huge gains).

Moderator:
Ross DeVol, Director, Regional Economics, Milken Institute

The emerging importance of science and technology were emphasized in this discussion of U.S. competitiveness in the emerging global economy. Idea-centered employment held as the primary source of strength for America's future. The general consensus was that America must focus more on improving young students′ skills in innovating thinking, science and technology to ensure a foothold in the future global market.

Overall, the panelists' views were optimistic about the future of the United States. Expanding markets and off-shoring options were presented as opportunities for America's growth rather than threats to American workers. As Terry Semel, chairman and CEO of Yahoo! Inc. noted, emerging global economies mean new markets for U.S.-based companies. The increased profits earned through global expansion create more resources for a company′s growth and lead to a stronger U.S. economy.

Deborah Wince-Smith, president of the Council on Competitiveness, called off-shoring "best-shoring," further promoting the idea that global expansion contributes to American economic growth. Diana Farrell, director of McKinsey Global Institute and McKinsey & Co., pointed out that nearly a third of U.S. trade deficits come from U.S. foreign affiliate companies. Furthermore, the majority of employers in targeted sectors, such as services-based industry, are comprised of small to medium enterprise. The threat of these companies transitioning to overseas employment is not high enough to warrant concern. Overall, Americans do not need to worry about losing their current employment to off-shoring.

However, Juan Enriquez, chairman and CEO of Biotechonomy LLC, reminded the audience of the tentativeness of America′s current position. The trend is for nations and economies to shift, expand and collapse over time. While the United States may seem to be continuing its role as a major player in the global economy, Enriquez asserted that its position is no more guaranteed than was Great Britain's in 1902. America must stay on top of current trends and educate its children to be competitive in the shifting economy.

There seemed to be consensus that the United States' current strength and future potential lie in idea-centered employment. Cost of labor and commodity as measures of economic potential were downplayed. Wince-Smith labeled the future economy a "conceptual economy," based on innovation and ingenuity. U.S. employment is heading toward more thought-type work and away from manufacturing. Insight and ingenuity seem to be America's strength. Semel pointed out that the majority of highly complicated Yahoo! R&D is performed by American employees. Therefore, it seems likely that America will need to encourage forward thinking in its future workers to maintain global competitiveness.

Panelists listed education as the primary tool for fostering such forward thinking. Enriquez reminded the audience of the emerging biotechnology field. He sees enormous opportunities for growth and knowledge expansion in the future. He expressed concern that America is not doing enough to prepare its children for these opportunities. He called for vast improvements in the American educational system to prepare students to be competitive in the future global economy.

Panelists regarded science and technology as essential fields, but also emphasized arts and culture. In fact, combining skills from multiple areas was seen as the greatest potential for future innovation. Science and art can build on each other. As Terry Semel put it, students must learn to "think out of the box," and the mixture of multiple areas can encourage this.

While the global economy was not seen as a threat to America, panelists felt that the innovative, scientific, and technology-producing quality of American workers must be enhanced for future success. If the United States takes advantage of employee ingenuity, the expanding global economy may actually presents new opportunities for economic growth. Americans should not worry about job loss due to off-shoring, but should focus on becoming more competitive in an idea-centered economy.

Introduction By:
Geoffrey Moore, Senior Vice President, Knowledge Universe Inc.

Moderator:
Harvey Rubin, Professor of Medicine, Microbiology and Computer Science; Director, Institute for Strategic Threat Analysis and Response, University of Pennsylvania

When the next flu pandemic occurs, how bad will it be? The 1918 flu pandemic killed between 50 million and 100 million people. Influenza deaths far exceeded total deaths during World War I. In fact, it may have been the worst disaster since the Middle Ages.

The most obvious lesson to be drawn is the need to "take the disease seriously," argued John Barry, author of The Great Influenza and Rising Tide. The next most important lesson is to "tell the truth," he said. Public officials should not tell people they are facing ordinary influenza when it may debilitate 30 percent of the work force. This means owning up to the possibility that a modern flu pandemic could be worse than the flu pandemic of 1918, which occurred in a world with 30 percent of today's population and in a world without air travel.

Although the disease could spread faster in today′s world of rapid global travel, Barry explained that a flu pandemic would likely come in waves rather than all at once. Because of this wave phenomenon, Barry proposed trying to monitor the disease. With early detection, it might be possible to snub out the disease before it turns into a pandemic.

But if the flu truly becomes a pandemic, the economic costs may be tremendous. Sherry Cooper of Global Economic Strategist at Harris Bank had estimated the economic cost and predicted that global economic growth would be cut by 2 percent annually for approximately three years if the next pandemic were similar in scale of the 1918 flu pandemic. Because companies keep razor-thin inventory and labor margins, a shock to the economic system might be enough to break it. Most businesses would find their supply chains completely broken if they lost 30 percent of their labor force for some period of time.

As for the effects on demand, Cooper said that people would no longer buy nonessential goods. Meanwhile, there would be panic buying of water, food and essentials, resulting in shortages. Furthermore, the market for discretionary spending would suffer massive deflation.

In fact, the pandemic′s effects on trade could be more problematic than the disease itself. "Trade and travel will screech to a halt." said Michael Osterholm of the Center for Infectious Disease Research and Policy. That is dangerous in an interdependent world. When a single region becomes infected, the entire supply chain is affected. Osterholm predicted that hospitals would be fighting the disease with 1918 medicine and equipment because virtually all imports would be cut off.

Since modern medicine will probably be of limited availability, Osterholm suggested that the "developing world will be better off" because these countries are self-sufficient, relative to the developed world, where people are used to having water delivered and having others bury the dead. "We'll run out of caskets overnight," he said. "In a time-to-order world, we′ll have trouble."

Although these scenarios are bleak, one panelist offered hope. Tara O′Toole of the Center for Biosecurity at the University of Pittsburg Medical Center, claimed that scientists could fix the flu problem within six years. She called for a new Manhattan Project that would gather scientists in an effort to find a quick treatment and a cure for the virus.

All the panelists seemed doubtful that a cure could be achieved within a six-year time frame, especially given the nation's inability to provide effective leadership to prepare for natural disasters, such as Hurricane Katrina. Even if a cure could be found within six or seven years, the panelists thought the chances of another flu pandemic occurring well before then were quite high. So the overall conclusion remained grim: The world will probably be underprepared for the heavy health and economic toll of the next major flu outbreak.

Moderator:
Laura Morse, Human Capital Partner, Atlas Venture

The most important strategy for companies in attracting and grooming the best talent is for those companies to understand who they are and what specific skills their future leaders will need in order to help the company succeed.

According to Scott Randall of BrandGames, the companies that succeed in attracting and retaining talent are those that have a strong culture and a strong sense of where they′re going. Companies have unique needs, suggesting that the skills required to accomplish one company's goals are not necessarily those required for another's.

The panelists discussed two sides of the question of grooming future leaders: recruiting and recognizing those leaders, and what to do with them once they're in the fold.

A key to hiring the right people is, as Rusty Rueff of Snocap pointed out, understanding employees' dreams, ensuring that those dreams and motivations match the company's mission, and finding ways for employees to achieve their dreams. At the same time, Mary Anne Walk of Walk & Associates explained that in order to attract the right people, companies should integrate their recruiting strategies with their overall business strategies, so that the hiring processes and priorities support strategic planning. Too often, as Jeff Cohn of Bench Strength Advisors stated, companies have "broken" success processes. Integrating recruitment strategies with company missions dictates a different way of thinking about who the "right" people are and what to do with them.

What should a manager do with a talented new hire? Although the panelists agreed that training and development are crucial, Randall also pointed out that overtraining can be evidence of insufficient business and human resource strategy. The panelists agreed that the younger generations of workers want to have control over their career paths and may be less receptive to employer efforts to set those paths.

In addition, the panelists discussed the difficulties of helping employees transition from "professional doers" to supervisory roles; they addressed the "disconnect" between the skills required for certain jobs and those required to succeed in managerial roles. The panelists also agreed that bringing outsiders into an organization can improve competitiveness and creative capacity, but that this transition can be difficult and should happen gradually and with support from longer-term employees.

Moderator Laura Morse of Atlas Venture brought up the question of how to compensate rising stars, and the discussion quickly moved toward ways to handle the balance between training and rewarding "high potential" employees, and retaining those who work hard but may have more limited potential. The panelists also commented on how human capital issues are changing in an increasingly globalized world, and agreed on the importance of exposing employees to other cultures and reducing restrictions on immigration in order to maintain American competitiveness.

Moderator:
James Barth, Lowder Eminent Scholar in Finance, Auburn University; Senior Fellow, Milken Institute

Recognizing that diversified channels of capital are crucial to the formation of efficient and healthy financial systems, many Asian countries have made the development of corporate bond markets a high priority. Since 2000, the Asian bond market has grown by 50 percent. Many countries, including China, have utilized this instrument to restructure industries and raise capital to finance growth. Although still relatively small in comparison to bond markets in North America and Europe, the Asian bond market is expected to grow, just as the regional economy continues to grow at high rate. How do these Asian debt markets differ from developed markets in America and Europe? How do they perform compared to other emerging markets? In emerging markets such as China, Thailand and Korea, information on corporation credit and performance is unfamiliar to many western investors. How should we decipher this information and their market measurements? How should we interpret industry performance, regulations and corporate governance and accountability from country to country? Join this roundtable for a lively discussion of these issues.

Moderator:
Stephen Goldsmith, Daniel Paul Professor of Government, Director, Innovations in American Government Program, Harvard University; Senior Fellow, Milken Institute

American education is in a state of crisis that, if left unaddressed, may compromise the nation's leadership position in an increasingly competitive world. However, all is not lost: Effective and targeted philanthropy can play a critical role in improving K-12 education in America.

Philanthropic spending in education is only a fraction of that spent by local, state and federal governments ($1.5 billion versus more than $400 billion in 2005) but represents a significant proportion of the discretionary funds available for reform. Regardless of the focal unit, whether it is students, individual schools, classrooms and teachers, or school districts, the panelists agreed that innovative approaches are desperately needed. They shared the challenges and triumphs they have encountered while working at each of these levels.

Tennis star Andre Agassi discussed the critical success factors for his charter school in inner-city Las Vegas, which has received national recognition for its effectiveness in raising the performance of students. His vision for the Andre Agassi College Preparatory Academy is to show that education can be a "different experience." His charter school's use of eight-hour school days, performance-based teacher contracts and stringent standards for student conduct and parent engagement have proved that such a transformation is not only possible, but highly effective.

On the other end of the size and scale spectrum, The Broad Foundation focuses on reforming large urban public school districts, which educate more than 40 percent of America's schoolchildren. Dan Katzir of the foundation emphasized the critical role of leadership at the superintendent level -- "great principals make great schools" -- and described the foundation's focus on developing and placing talented managers from both within and outside the education sector. The foundation employs rigorous performance and accountability measures for its grants, investing not only money, but intellectual capital and resources to make a difference for urban public schools.

Several of the panelists mentioned the need for engagement from all sectors, and Stanley Litow of IBM demonstrated the role that corporations can play in catalyzing innovation in education. "Great schools require great teachers," he noted, adding that the IBM foundation has developed an innovative program to train and support individuals interested in second careers as teachers, particularly among the ranks of retiring IBM employees. In addition, the foundation is developing a portfolio of creative, interactive educational lesson plans to help support teachers in the classroom.

Thomas Boysen of Classroom Solutions disagreed with Litow that better teachers are the answer. Instead, he argued, the key is that education must develop a "lust for innovation," both within and without the system. One critical component is accountability for results, founded on clear standards and constant feedback. Although many critics argue that tests can "dumb down" teaching, Boysen argued that the opposite is equally true. The No Child Left Behind Act demonstrates that effective tests are the best way of elevating standards, he said, noting that he is optimistic that this orientation toward results will lead to significant improvements over the next few years.

Education experts agree that there are no easy solutions to the growing education crisis. However, today's panelists have demonstrated that philanthropic efforts can make and are making significant contributions. Education reform is not only possible, but also critical to the future.

Moderator:
Ted Mitchell, President and CEO, NewSchools Venture Fund

Attendees will be able to listen in as members of California Gov. Arnold Schwarzenegger's Advisory Committee on Education Excellence meet at the Global Conference. The committee is charged with developing policy proposals that will help raise the performance of the state's schools. Their recommendations to the governor and secretary for education will focus on school finance, governance, teacher recruitment and retention, and administrator preparation and retention.

Moderator:
Thomas Cole, Partner, Chairman of the Executive Committee, Sidley Austin LLP

With their seemingly unlimited access to funds and low degree of government regulation, hedge funds have recently emerged as a player in the world of corporate governance. According to the Wall Street Journal, they are the "new sheriffs of the boardroom," though the panelists agreed that the amount of power wielded by these hedge funds varies widely depending on their type.

Panelist Dennis Chu of Cambridge Associates identified three mechanisms by which hedge funds can influence corporate governance: through direct investment or direct lending, through activism, or as catalysts or participants in mergers and acquisitions.

Much of the discussion focused on the so-called "activist" funds, which panelists agreed represent a very small percentage of the approximately 8,500 U.S. hedge funds. Managers of these activist funds generally target corporations with poor market performance or those that are temporarily vulnerable to interference. In these cases, hedge fund managers are usually not seeking improved corporate governance, but rather are interested in breaking up or selling the company. One panelist suggested that some funds aim to be "friendly activists," though moderator Tom Cole of Sidley Austin replied that most corporate boards would assert that such an expression is an oxymoron.

Overall, however, the panelists agreed with the suggestion by Daniel Yih of Golder Rauner that hedge funds are actually making the market more efficient because they are less intrusive investors than traditional shareholders or venture capitalists. Josh Friedman of Canyon Capital Advisors noted, though, that the nature of hedge funds is shifting as the government is beginning to impose stricter regulations on the sector. The most visible implication of these restrictions is the increasing number of hedge funds that are shifting toward a more locked-up structure, in which investors have no access to their funds for a specified, often longer period of time. Still, Cole asserted, the "ultimate social utility" of hedge funds continues to be positive.

The panel also discussed the future of the investments market, with Cole asking the panelists what they believe the market will look like in 10 years. Friedman expressed the sentiments of most of the panel when he suggested that the differentiation between hedge funds, mutual funds and private equity markets will continue to exist in the future, as the knowledge and expertise needed for each sector becomes more specialized. Chu also conveyed his belief that an economic downturn would cause people to abandon traditional investment vehicles and move into the hedge fund market.

An underlying theme throughout the discussion was the wide variety of funds that are classified as hedge funds and the wide range of strategies that managers use. Chu listed more than 10 different types of strategies used by these funds, ranging from investing in distressed sectors to strict quantitative strategies. All of the panelists agreed that the nature of the fund depends on the nature of the manager, and that investors must recognize that facet of hedge fund investing. Friedman gave perhaps the most accurate explanation of this phenomenon when he quoted a friend who said that hedge funds are "like dogs: a lot of different breeds, one name, but they all look like their owners."

Respondents:
Robert Beall, President and CEO, Cystic Fibrosis Foundation
Kathy Giusti, President, Multiple Myeloma Research Foundation

Moderator:
Greg Simon, President, FasterCures / The Center for Accelerating Medical Solutions

Moderator Greg Simon of FasterCures began by introducing the impressive accomplishments of each of the panel members, all founders and managers of charitable foundations dedicated to medical improvement. In the end, all members agreed that philanthropy ought not to be akin to a "vow of poverty."

A key theme was the shared belief that nonprofit foundations needed a good business model in order to operate in a productive manner. Carl Schramm of The Marion Ewing Kauffman Foundation emphasized the need for entrepreneurship in philanthropy by proclaiming that his foundation recruits businessmen for management positions. Philanthropy is not contrary to capitalism, he said, noting that one of the greatest aspects of the United States is the fact that many of our wealthiest citizens do not horde their wealth but reinvest it and donate it into our economy.

Michael Milken emphasized the need for passion in philanthropy. Although there is little economic incentive driving charitable foundations, he said, a different and major incentive is the belief that one is making a difference and creating productivity in a powerful way. He noted that 50 percent of men will face cancer in their lifetimes, along with a third of all women. One path to reducing this number is philanthropy. Change can only occur through putting up your own money for a cause, he said, or mobilizing a large group of people behind that cause.

Tour de France champion Lance Armstrong, who is also founding director of the Lance Armstrong Foundation, described his dream of spurring change in the battle against cancer by "creating an army." His "Livestrong" bracelets have raised millions and inspired many to contribute to the fight against cancer. He criticized the Bush administration′s cancer research funding decisions and said that the easiest way to make a difference is to increase preventive screenings in urban areas. The failure to provide screenings is "saving a dollar today in order to spend a dollar later," he stated.

Near the end of the panel, respondent Kathy Giusti of the Multiple Myeloma Research Foundation and a cancer survivor, said that sharing information was important. The Multiple Myeloma Research Foundation tells each donor precisely where his or her money has been invested. The foundation also provides information about all decisions, including less successful endeavors. This involves the donor and provides accountability for the foundation.

Moderator:
David Blake, Executive Director and Chief Investment Officer, Fixed Income, Principal Global Investors

Investors in the fixed-income and credit markets face strong growth and highly liquid markets with the extremely low spreads. So where should they invest?

Neal Soss, managing director and chief economist of Credit Suisse, started the panel discussion, painting strong economic prospects for the world economy.

Soss noted that both the United States and Japan are currently growing above potential, as demonstrated by the decreasing unemployment rates. He expects current government policies to be supportive of this environment with the continuation of loose fiscal and monetary policies. With this in mind, he described the market dynamics as a rolling bubble that could move from current housing mortgage market to the commercial real estate and stock markets.

Ellen Griggs, a managing partner of New England Pension Consultants, said she advises her clients to focus on asset allocation. The traditional diversification strategies no longer apply, she said, and investors must look at "the big picture," which includes analyzing and managing their liabilities, as well as giving managers more leeway to generate alpha.

Maria Boyazny, a principal at Siguler Guff & Co., expressed her worries with the overextension of the credit markets. She expects the current historically low default rates to rise as the lower quality credits dominate the new issuance. "I believe that we are at the peak," she noted, "or have gone past the peak of the credit cycle."

With a slightly less sanguine view, Lawrence Post, chairman of the Post Advisory Group, pointed out that the current low level of spreads could be explained by both profits and the easy access to capital. He expects that the new issuances to widen the spreads by as much as 25 basis points.

The panel debated the role of traditional managers versus hedge fund managers, as well as changes in the current pension fund mandates. In particular, they emphasized the need for pension funds to allocate with respect to their liability profiles, and highlighted the need for U.S. pension reform.

David Blake with Principal Global Investors, who moderated the session, also asked about the impact of expanding credit derivatives market. The debate was centered on the large amount of outstanding derivatives compared to the issuance size. Soss highlighted the positive impact of dispersing credit risks through many participants, while Boyazny pointed out the existence of "short-squeezes" contributing to market volatility.

The panelists approached a myriad subjects including, the emergence of the second lien market, the future of the U.S. auto industry, current opportunities in distress investing and the economic prospects of the emerging economies. The session ended with the sharp contrast between the positive economic outlook that, according to Soss, explains the current price levels, and the historically low spreads that Boyazny maintains indicate an overextension.

Moderator:
N. Mark Lam, CEO and Chairman, Executive Committee, Live365

The panel started with an overview of China′s current climate: an increasing urban population, a sharp rise in foreign direct investment and an increase in the number of contracts.

Moderator Mark Lam of Live365 then posed the following question: How do you think the White House handled the recent visit of President Hu Jintao? While the panelists came up with various responses, James McGregor, author of One Billion Customers, stated that he thought the administration had clearly missed its goals with respect to China, as well as its focus of doing business in China or meeting with Chinese business leaders.

"The Chinese have the overall perception that the U.S. is too much trouble to do business with," he said, in response to a question about possible remedies to the trade imbalance.

The trade deficit today is structural, he added, noting that the real issue for China is intellectual property rights, which have "definitely gotten better, but are far from good enough." Lam suggested that that these issues would not go away because of the "inherent economic underpinnings (of each country). In order for industries to develop, they must develop their IP." He gave the examples of Taiwan and Japan, which used to have poorly regulated property rights. McGregor responded that China's neglect of IP rights has been far worse and should not be allowed to continue.

China's trade with Asia has been exponentially increasing, and it was noted that Asia could become a trade bloc that has no need for the United States; since 1990, the number of mergers and acquisitions with publicly traded companies between China and other countries has increased dramatically, from 1,500 a year to more than 9,000.

"When going into an emerging market," said Jonathan Colby of The Carlyle Group, "one of the first things that we look at are banks." Stoyan Tenev of the IMF said that "consumer-oriented sectors are attracting the most investments -- the Chinese consumer is particularly exciting to all of us." Discussing the advantages and disadvantages of diversified state-controlled companies vs. private banks, he said that "investments in state-controlled banks do not always provide the greatest incentives."

Wei Wang of China M&A Management Holdings added that the Chinese banking sector needs fundamental change; the changes being made today are symbolic, he maintained, rather than fundamental. However, the panelists agreed that there has been significant reform recently, with Tenev stating that nobody "expected such fast privatization of state banks, which has been very significant." Colby also noted that health care appears to be a very attractive industry that multinationals will eventually get into.

The panelists then discussed China′s fragmentation of industries, noting that fragmentation is lower in state-owned industries, but still high. Fragmented industries irritate and excite investors at the same time because while there exist poor market designs and pressures from non-regulated business practices, but there is a lot of money to be made, as well as consolidation in specific fragmented areas (such as steel, cement and retail). The panelists agreed that this type of excessive industry diversification offers an abundance of M&A opportunities to Chinese entrepreneurs today.

Wang closed the panel, emphasizing that China is still not a developed country, but indeed one that is growing and learning. He compared China to an adolescent "on a very sharp learning curve, where entrepreneurs are trying to realize their dreams."

Moderator:
Glenn Yago, Director, Capital Studies, Milken Institute

The focus of panel debate was on what Israel needs to do in the next 10 years in order to break through the barrier that keeps it an emerging market country rather than a developed country.

The discussion revolved around three key areas of improvement: 1) a change in Israel's capital markets so that they are more visible internationally and have more domestic investors; 2) retention of the technology knowledge within Israel as more outside venture capital firms invest in local companies; and 3) improved transparency in the system and a decrease in the regulatory restrictions on capital flows. The panel was in agreement that working toward all these goals would help Israel become more financially independent.

Steven Schoenfled of Northern Trust Global Investments suggested that Israeli firms should work on listing in multiple markets, as this might stimulate the amount of capital flow into the country. In addition, Israeli companies need to increase the amount of "float," or share of the company, available to the public. Schoenfled noted that by freeing up float, institutional investors, like the Jewish Federation, would be more likely to invest. Schoenfled said that a latent demand exists for these types of investments, due in part to the fact that there are not enough different types of financial instruments, such as stock index futures.

One of the shining stars in the Israeli economy has been the tech sector, where many companies do list on multiple exchanges. Eitan Ben-Eliahu of East West Capital attributed some of the country′s technological successes to exportation of its military research. Nadine Baudot-Trajtenberg of Bank Hapoalim noted that because of the success in technology, many international venture capital firms support small companies in Israel. However, the VC firms' presence has resulted in local technology knowledge being sold abroad. Thus, Israel is exporting a key asset for its economic growth. In order to continue growing, companies must feel encouraged that there will be local investment. The panel agreed, however, that technology cannot be the only solution. Despite the power of these technology companies, their success was insufficient to pull the economy up from 1998 through 2000. In addition, Ben-Eliahu noted that the security of the country posed a human resource drain on the economy because men are required to serve in the military until age 27 or 28, and only recently were women allowed to decline to serve.

Finally, Mathew Bronfman of ACI Capital noted that in his recent acquisition of the third-largest bank in Israel, one of his key concerns was the amount of regulation in place which deterred investment. He claimed that if the government focused on more transparency in business, as well as reducing the restriction on capital flow, it would help the economy grow.

The session concluded with some audience questions of the panelists. Asked whether Israel needs a Community Reinvestment Act to encourage and support lending to small and medium-sized businesses and underserved communities, both the Bank Hapoalim and Israel Discount Bank (the first- and third-largest banks) responded positively.

The panel concluded with a poignant question about the lag in the real estate market in Israel. Earlier in the session, the panelists noted that Israel was one of the few countries in the emerging market category that has not experienced a real estate boom, which has been a powerful growth mechanism for many countries. Ending on a positive note, Bronfman and Baudot-Trajtenberg noted that the real estate market had shown signs of improvement recently, which might be a further catalyst to the country′s growth.

Governments and financial markets are the dominant forces in our economy. Creating synergies between the two have long been a priority for policy makers and market players alike. Many corporations have placed former elected and government officials on their boards and investment firms have turned to these same individuals to serve in leadership positions for their various funds and related projects. With all this integration of these two communities, can investors still get access to important public policy, political and regulatory information without adding a former president or senator to their board? Why is the gap of understanding between these two communities so large? What resources are out there to help capture up-to-date governmental insight?

Preregistration for this invitation-only event is required. For information, contact the Events Department at 310-570-4605.

Moderator:
Maria Bartiromo, Managing Editor, "The Wall Street Journal Report," Anchor, CNBC

Most of the hot-ticket items in current policy were covered in this overview of the U.S. economy. While the panelists generally agreed that the economy is experiencing substantial growth, they also pointed out some key concerns in the areas of social security, wages and health care. They emphasized the importance of tackling these issues and better preparing the U.S. for an increasingly global economy.

The face of the U.S economy is shifting rapidly, and American workers are experiencing its growth pains firsthand. Andrew Stern of the Service Employees International Union remarked that while America′s GDP may be increasing, American wages are not. According to Stern, seven out of 10 Americans currently live paycheck to paycheck and the No. 1 resolution among Americans this year was to get out of debt. He worries that politicians are not recognizing or addressing the American workers' desire for financial stability. He called for the return to citizen action and stressed the need for Americans to get out and show their representatives that change is needed.

Jeffrey Kindler of Pfizer Inc. said he felt that America is losing its innovative edge. He pointed to the decrease in American science and engineering students as a major source of concern for America′s future. Thomas Donohue of the U.S. Chamber of Commerce commented that 30 percent of American students are not graduating, further stressing the concern that America′s youths are not prepared for the future.

Doug Holt-Eakin, former Director of the Congressional Budget Office, asserted that America also needs to worry about older workers. He reminded the audience that the average life span is increasing all over the world, dramatically changing the flow of labor and capital. The market is becoming more global, and international industries are currently the most productive industries. He sees a need to prepare older workers to deal with international competition.

Donohue agreed that workers are living longer and questioned who will support these workers when they retire. He asserted that workers cannot expect the company pensions that were commonplace 50 years ago, and that increased worker productivity means fewer people paying into social security. Holtz-Eakin agreed that the great experiment of social security is over but stressed that the people should understand that the policy process supports them. He contended that people will be paid the benefits owed to them; however, government needs to make changes for the future while honoring its current promises.

From there, the discussion made an easy transition to health care. All panelists agreed on the importance of revamping the current health-care system, but they differed significantly in their solutions. Kindler argued for more action in preventative care. He said that the percentage of undiagnosed illness is way too high in America, and that as a country, we are not doing enough to lower our risk of illness. He stated that the ideal health-care scenario would include cooperation between government, the private sector and unions to put greater emphasis and more money into preventative medicine. He called the current system a "sick-care" system, where the riskiest portions of the population are being treated in the worst possible way: They enter the system only after their illness has progressed to emergency-room status.

Holtz-Eakin spoke up to say that no solid scientific evidence exists yet to demonstrate that preventative care really saves money. At best, it may help extend life expectancy or improve quality of life, and said we need to acknowledge that health-care costs have always outpaced income per capita. This is attributable to rapid changes in technology embraced by Americans, he explained. To reduce costs, he suggested adopting a more selective approach to technology changes. Instead of embracing every new approach, American health care needs to consider the costs of technology and weigh its worth.

The session brought up interesting and important points that need to be addressed in U.S. domestic policy. America appears to be continuing as a strong force in the global economy, but it must address some of these key issues domestically. Policy-makers need to place greater emphasis on improving the situation for the American worker, specifically, to increase wages, redesign retirement plans and ensure health-care access to all citizens.

Moderator:
James Barth, Lowder Eminent Scholar in Finance, Auburn University; Senior Fellow, Milken Institute

The session, led by James Barth from Auburn University and a Senior Fellow at the Milken Institute, contrasted the domestic and foreign policies in China, India and the United States. In particular, the session highlighted the shift from fixed-asset investments toward a more internal consumption led growth in China′s five-year plan.

Maria Boyazny of Siguler Guff & Co., expressed concerns with the levels of non-performing loans in the Chinese banking system going forward. State-controlled banks have financed overinvestment in certain sectors and might be subject to higher default rates as growth shifts to other areas of the economy.

Frank Sixt of Hutchison Whampoa addressed the interactions of domestic and foreign policies. He emphasized that the sheer size of India's and China's domestic policy agendas actually shaped their foreign policies, as exemplified by their growing need of commodities and energy products.

Ramesh Vangal, chairman and founder of the Katra Group, placed India's influence into perspective, suggesting that India offers a counterbalance to China′s emergence in the region. India development has been primarily led by domestic consumption and is mainly focused on the service sector. Even more contrasting is the evolution of India's democracy. With a freer and more pluralistic society, India has been able to show more progress in developing domestic institutions, such as working capital markets and its accounting system, thus balancing China′s central planning and non-democratic system.

The former U.S. ambassador, Steven Green, placed more emphasis on the U.S. political processes. In particular, he argued for the need of the business community to educate the American public on the real effects of a globalized economy, in an effort to counteract the fear being spread out by some political players.

Perry Wong, a senior research economist with the Milken Institute, provided insight into the strong regional and global integration processes. He described China not only as providing resources, such as labor, but also an important re-exporter for the region. Wong discussed the impact of a potential revaluation of the Yuan, not only on the region but also on the global companies present in the Chinese economy.

The panelists approached various aspects of how the different economic and political processes could evolve, with particular emphasis on how their political processes might shape world order.

Moderator:
Michael Milken, Chairman, Milken Institute; Chairman, FasterCures / The Center for Accelerating Medical Solutions

The panel discussed the growth finance, particularly in the "middle market." As defined by Todd Boehly of Guggenheim Partners, the middle market is made up of the smaller, usually newer enterprises. The speakers shared their experiences with this industry, addressing what they believe makes for a strong investment and how they help their clients.

Christopher Melton of the White Oak Group said he considers management to be key for success with the middle market. His goal is to nurture the businesses through their first few years, during which banks are usually too risk-averse. Part of the process, though, is a considerably more intense monitoring of the company′s well-being. As Michael Milken observed, banks traditionally would look at credit periodically, once a year or quarter. Today's growth financers look weekly. Boehly's clients pay their loans monthly, rather than the traditional quarterly, so he receives a relatively quick feedback on the companies′ fitness.

Boehly credits Guggenheim Partners′ success to its "reputation for closing and listening." Several of the panelists emphasized the importance of working closely with the client to understand his or her needs. Richard Rainwater of Rainwater Inc. recalled that his best investments and long-term relationships were based on giving respect, not just a check. His clients appreciated knowing that "their quality of human capital was worth someone taking a risk on." The clients needed to learn from the financers, as well. Boehly explained that many of his clients are entrepreneurs who are extremely knowledgeable about their business, but not about financial markets. They need to be educated. Given that these companies are still being financed on credit cards and second mortgages, they′re happy to learn, Milken added.

One of the hardest lessons, Milken said, is that "the best time to finance is when you don′t need the money." Boehly recalled an example of an oil company in Venezuela that passed on acquiring financing; now that Hugo Chavez is in power there, the company can′t get any. Kevin Murphy said that this "division of labor" allows each person to do what he does best: The entrepreneurs innovate, and the financers to set up financial structures.

The conversation turned to credit ratings, which most of the panelists found misleading. Boehly explained that a loan doesn′t have a monolithic risk; it has tiers of risk. For instance, the first dollar is almost guaranteed to be paid back, deserving an AAA rating. Rainwater concurred, observing that many securities are money-good, even if credit-bad; one should consider the price they are trading at. Milken explained that this is because there′s no real penalty for rating a company too low. Newer companies are particularly susceptible to this bias, while older companies tend to get rated too highly, out of inertia.

Spreading capital to the middle market is vital for job creation, Milken said. From 1970 to 2000, the Fortune 500 Companies actually cut 4 million jobs. The smaller, newer companies created new positions. However, Murphy found this focus on job creation misguided. He countered that the real growth in an economy happens through efficiency. When Fortune 500 companies decrease their work force, they didn′t lose money. Rather, they free up labor for other enterprises.

All the panelists agreed that a new company′s most important asset is its human capital. Murphy stated that there has been a rise in return to human capital, and Milken concurred, mentioning the increased incremental rate of return for going on to gradate school. He suggested that the national savings rate should take investments in education into account.

All of the panelists felt that growth financing in the United States was about taking a close look at smaller companies with strong management. They recommended careful research to see beyond the credit ratings for good investments. They felt that these businesses, with careful monitoring and nurturing, could be very profitable.

Moderator:
Yoram Wind, Lauder Professor and Professor of Marketing, The Wharton School, University of Pennsylvania

When asked to view a film in which people wearing different-colored shirts passed a basketball to one another and then to count the times the ball was passed from white shirt to white shirt, participants in one study not only turned in counts that differed wildly, but 50 percent of them utterly failed to notice a gorilla walking through the middle of the room. Moderator Yoram Wind of the University of Pennsylvania described this as an apt metaphor for the failure to recognize problems in any given business in a changing and increasingly "flattened" world.

Held up as the quintessential example to the contrary was the Li & Fung Group, which has achieved a remarkable level of fluidity within a new, "network-centric" business model. At Li & Fung, products are assembled from parts produced throughout Asia in such a way as to maximize comparative advantage by catering specifically to each customer's unique needs. Barbara Meynert asserted that creative resourcefulness makes it possible to create value for the entire supply chain, and ultimately for the consumer. One means toward this end is the utilization of teams for each individual project that share incentives with the customer to be efficient and provide a high-quality product. Another method is the use of local people as "orchestraters" of operations on a region-by-region basis.

All the panelists agreed that for a network-centric business to thrive, it must develop relationships of trust based on financial transparency and fair reward incentives. Philip Evans of Boston Consulting Group noted that these relationships often take longer to form, but that the returns speak for themselves when compared to the traditional management style of the old firm-centric model. Examples cited were eBay and Amazon, and the use of consumer feedback by both to garner the trust of the community that uses their services; a bad review of a book may seem counter-intuitive in the short run, but in the long run, the trust it creates produces extraordinary returns. In the case of Toyota, it was pointed out that shared intellectual property rights facilitate faster technological innovation, compared with a lack of openness in GM.

In addition to fluidity, trust and transparency within a given business, increased efficiency can be found in the network-centric model via the consumer themselves, who in many cases take up responsibilities like design free of charge. The example of threadless.com was presented in this light, where customers design their own T-shirts. Open source software and the success of Linux, in particular, is perhaps the best example of this trend.

While the panel focused for the largest part on these various strategies to increasing comparative advantage within the network-centric model, the starting point for each of the panelists is that the network form does indeed provide a competitive edge. The question, then, becomes one of transition, or what Meynert characterized as a "mind-shift" away from the firm-centric model.

In responding to a question from the audience as to whether or not the American culture of individualism represented a potential barrier to entry into network-centric businesses, Meynert shared the moment when she herself first "saw the flat world" in a group of tech-savvy youngsters. Evans provided the example of Lexus Canada for successful North American network-centric business, but he also acknowledged that mind-shift is not a trivial concern, and not always easily achieved within the existing corporate structure.

Federico Sada Gonzalez of Mexico′s Viitro, S.A. de C.V., described the change in terms of what used to be big fish and little fish. Now, he said, the fastest fish eats them both. Perhaps the gorilla in the room is not a problem with the existing paradigm, but rather our failure to recognize and successfully transition to a better one.

Moderator:
Maria Bartiromo, Managing Editor, "The Wall Street Journal Report," Anchor, CNBC

While many opportunities exist in the capital markets, the panelists' primary concern was the incipient protectionism that seems to be emerging in the economic community. David Jackson of Dubai-based Istithmar referred to this as "a nasty strain" of protectionism.

Each of the panelists expressed concern over such actions as the call by Sen. Chuck Schumer for tariffs on Chinese imports or the recent uproar over the sale of U.S. port operations to an investment group from Dubai. And it is not only in the United States that there are signs of protectionism. Countries like France and Italy are also increasingly engaging in such measures and resorting to protectionist rhetoric in order to combat what they see as the "danger" of globalization.

Except for the protectionist issue, the panel members agreed that they see a generally benign outlook for the global capital markets, forecasting a continued pattern of low volatility and generally attractive financial market conditions. Jackson said he favors alternative investments, such as hedge funds and private equity. Suzanne Nora Johnson of Goldman, Sachs & Co. likes uranium as a cheap energy source and thinks uranium producers or even uranium futures might make an attractive investment.

Australian James Packer, Brian Fabbri of BNP Paribas and David Rubenstein of The Carlyle Group were all bullish on Asia. Packer favored China, in particular; his top idea would involve opening an equity research shop in Shanghai, as he sees this as an underserved market with fantastic growth potential. Rubenstein was a strong proponent of diversification, cautioning investors to avoid putting all of their eggs in one basket. Rubenstein favored investments in renewable or alternative energy sources. Fabbri was particularly excited by the dynamic growth prospects Asia currently offers, noting that this is in stark contrast to Europe and America.

The panel also discussed particular sector views. Rubenstein again extolled the opportunities available in the renewable-energy sector, not only in the United States, but also in China and India. Although excited by alternative and renewable-energy sources, none of the panelists felt that the current run-up in oil prices pose a threat to the strength of the economic expansion. They did note. Though. that at some level, a continued rise in energy prices would result in an end to the global economic expansion.

Fabbri and Johnson both favored the health-care and biotech sectors; demographic trends in the United States and around the world are extremely bullish for this sector in the long run, they predicted. Jackson produced perhaps the biggest surprise of the panel. Although the majority of the investment community has turned negative on the sector, Jackson's company continues to favor U.S. real estate. Finally, Packer discussed how his company was excited to have secured a gaming license in Macao, the island near Hong Kong that is forecast to soon surpass Las Vegas as the world's busiest gaming destination.

The one area of disagreement among the panelists was on the future of private equity. As the co-founder of one of the largest private-equity firms in the world, Rubenstein continues to be bullish on the future of the industry. Johnson was somewhat more bearish on the sector, particularly regarding the prospects for many of the newer entrants to the market.

Moderator:
Dwight Cass, Editor-in-Chief, Worth

Many private families have heard about "family offices," but even those who are familiar with the concept often are not fully aware of the range of choices available to them. The critical question no longer is whether they should have a stand-alone family office or be part of a multifamily office, because there are a greater range of alternatives available to private families today. What family-office services should be handled in-house and which are better outsourced? The complex and opaque nature of the market for family-office services makes it difficult to evaluate these alternatives. Our panel of family-office experts will shed light on this fragmented and fast-changing business by revealing how successful private families have prioritized their needs and then found the best alternative for family-office services to best meet their needs.

Moderator:
Betsy Zeidman, Director, Center for Emerging Domestic Markets, Research Fellow, Milken Institute

Despite rapid advances in the standard of living in much of the world, almost half of the world′s population subsists on less than $2 per day. According to the panelists, this is "everyone′s problem" and will require everyone′s cooperation to address effectively. Financial and business leaders are developing innovative approaches to leverage finance, philanthropy and business development to yield "double-bottom line results" that provide investors with solid returns while also making a meaningful difference in fighting poverty and inequality.

Stewart Paperin of the Open Society Institute identified the primary role of private institutions in promoting financial integration between the microfinance organizations that serve the poorest of the poor and the larger commercial financial institutions that serve the next tier of the population. The current disconnect between these two systems can impede the fight against global inequality, and Paperin argued that "connecting the dots" should be a priority for the private sector.

In addition, he said, the private sector can help inject back-end administrative and processing expertise and discipline into the process. Meanwhile, the government should focus on getting the rules and regulations right and philanthropists on advocating and demonstrating the feasibility of initiatives.

Susan Blaustein of the African Millennium Cities Initiative discussed what such a demonstration can look like. Her innovative work in sub-Saharan Africa is centered on three major initiatives: a green revolution in agriculture, a health revolution in addressing malaria and other illnesses, and an infrastructure revolution to develop the roads needed to sustain a modern economy. As Blaustein passionately noted, "We can′t wait because waiting means lives." The hope is that demonstration projects like the Millennium Cities Initiative will show that there are viable and effective solutions to these seemingly intractable issues, catalyzing investments in these areas.

As Lauren Burnhill from ACCION noted, microfinance models have proved very effective in addressing the subsistence needs of some of the poorest of the poor. The challenge today is on building scale and increasing the revenues of these micro-entrepreneurs to transition to traditional financial products. Commercial banks, such as Citibank, are beginning to show interest in this area, which may facilitate the bridging that Paperin suggested was so critical.

Ann Miles of BlueOrchard Finance was optimistic about the success that microfinance has had, but she pointed out that less than 1 percent of the overall demand has been financed on the capital markets. In addition to microfinance, the focus has turned to alternative means of financing, including bond issuances and structured finance offerings. Miles was hopeful that these recent innovations will pave the way for more robust private investments in efforts to reduce global inequality.

Investors have had a tremendous impact on combating global inequality, but the battle is far from over, and significant challenges remain. First, there is the issue of asset classification. As new financing models emerge, many are unclear on how to treat these new instruments, both from a risk and ratings perspective and as a matter of pure categorization. Second, it is critical to build the capacity of micro-enterprise institutions to bring offerings to market. And as these organizations begin to offer savings and deposit products, regulations may be required to protect these deposits and prevent potential banking collapses in times of crisis.

Liabilities management will be an important capability. Third, it is important to increase the visibility and acceptance of microfinancing to conventional investors, which includes improving the liquidity and attractiveness of these instruments. Finally, it will be critical to iron the role of local vs. international financial markets: Is the solution Wall Street or Main Street?

Financial investors have already made a tremendous impact in fighting poverty and inequality through innovative financial models. Continued, sustainable progress will require ongoing commitment and creativity, and the ability to make investment propositions that make social and economic sense.

Moderator:
Nir Kossovsky, CEO, Technology Option Capital LLC

Current models for funding early-stage health-care innovations leave many promising firms without cash or out of business, while others never get through to a first round of investment. Communication between the innovators and investors is inefficient. The innovations that do get funded usually meet specific sweet-spot investment criteria for returns, leaving many other opportunities unfunded. How can we change this so that young innovators, especially in the area of biotechnology, get the capital they need to discover new, potentially life-saving drugs? One new model has successfully funded innovations in cardiovascular disease, stem-cell harvesting, non-toxic cancer treatments and drug-delivery innovations, generating good returns on private-investment capital and public-equity share price appreciation. Other approaches pool patents to spread risk across multiple opportunities. This session will explore various ways to use alternative financing vehicles to fund medical innovation.

Moderator:
Paul Gigot, Editorial Page Editor, The Wall Street Journal

Paul Gigot of the Wall Street Journal kicked off the plenary session with an overview of the global economy, first highlighting the outstanding growth of the United States, China, India and Russia during the past few years, despite increasing interest rates, oil prices and terrorist threats. In contrast, Germany, France and Italy have displayed anemic growth, he said as he introduced the three panelists, who each gave a short speech on their view of current and future states of the global economy.

President Vaclav Klaus of the Czech Republic stated that "we live in a tightly interconnected world" and that globalization has had a net positive effect. Stressing the importance of freedom and openness rather than protectionism, he said, "Communism has gone, but liberty and openness have not become our guiding principles." In particular, he said, Europe has shown a renewal in protectionist policies, with the EU prime minister proposing a fund for the "victims of globalization" in Europe.

David Rubenstein of The Carlyle Group stated that during this decade, "what happens outside the U.S. is just as important as what happens inside." He asserted that the United States would have to change in order to remain one of the world's great global powers, and that one of the fundamental changes would be to invest more heavily in foreign markets, as well as to allow more foreign direct investment. If not, he warned, the country would most certainly "run the risk of not being the economic power we have been for the last 50 years."

Gary Becker outlined the major engines of growth in the past year. He stressed the importance of the great productivity growth that the United States has seen in the past decade, as well as the explosion of growth in developing countries, and in China and India, in particular. One of the main drivers of future growth would be to give private-sector ample opportunities. He also stressed that the real risks lay in too much intervention by the government. For the long term, he noted, the most important thing for growth in the United States would be to keep the government from "messing up too much."

"Are we seeing an incipient re-inflation?" Gigot asked the panelists, and Becker stated that what we are seeing is a rise in relative prices rather than inflation. The other panelists concurred, with Rubenstein adding that there were far bigger problems than inflation today.

Panelists were asked if they were in support of the flat tax and whether such taxes drove the new policy changes in "Old Europe." Klaus was in favor of it but warned against thinking of it as a solution for other problems. Becker agreed, stating that they should "not think it as an 'open sesame' to a global economy." He also cited other problems that came along with the flat tax, such as how to tax the corporate sectors and other special groups. Rubenstein added that the United States has in effect a "back-door flat tax," and Becker concluded by saying more important than a flat tax to economic stimulation was having low taxes. Rubenstein stressed that there is a direct link between tax rates and the stock market.

Gigot then moved the topic to the risks of protectionism, asking the panelists, "Are we seeing a backlash of protectionism?" Klaus responded that he saw resurgence in protectionism, particularly in Europe and United States. Panelists suggested that strong presidential leadership could drive trade liberalization and that the current administration′s low approval ratings might be harmful to the U.S. trade policies. Klaus added on that the U.S. and other Western European countries had the additional burden of non-tariff barriers. Other barriers were external, with the rest of world viewing globalization as the spread of Americanism.

The panel concluded with a short discussion of China, which Rubenstein described as a "huge growth market." He said that despite the risks of Chinese negotiations, investors in China should be prepared to go there for long durations and work with local partners in order to take advantage of the opportunities for profit, concluding that China′s main focus is not to make the United States richer.

Moderator:
Joel Kurtzman, Senior Fellow, Milken Institute; Senior Advisor, Knowledge Universe

The panel started with Joel Kutzman's introduction of the Milken Institute view on risks. He put risks into two types: low frequency with high impact, and high frequency with low impact. The first type includes abnormal natural catastrophes; the second can be corruption or failure of the legal system. It is actually the high-frequency, low-impact risk that causes the business world the most trouble, he said, and he noted that one of his greatest worries was that capital had been flowing into such countries as China, Brazil, Russia and India, which have enormous unpredictable risks.

William Anderson, from National Intelligence Council, looked at risks according to three aspects: importance, likelihood and timing. His greatest worries included avian flu and the risk of a terrorist attack. Gen. Wesley Clark agreed that biological threat was a major concern for the United States, as was the nuclear potential in the Middle East. U.S. involvement in Iraq signals an unstable equilibrium, he said, and it is hard to tell how long it will last.

Knowing how to manage one's portfolio in emerging countries under all kinds of risks is important, said George Hoguet of State Street Global Advisors, adding that the financial market is an efficient aggregator of information. The expectation of risks is absorbed by the market and reflected in prices or other indicators. However, extra attention should be drawn to the shape of the distribution of those risks, i.e., the probability of the risks. He pointed out risks that he considers particularly noteworthy: the high oil price that may slow down the world economic growth, the potential disorder associated with the global imbalances and the current housing market in the United States, which many believe to be a huge bubble.

Marc Miles of The Heritage Foundation expressed his concern over Eastern Europe. Many Eastern European countries, he said, have low flat tax rate and are implementing large-scale tax cuts, which put competitive pressure on the rest of Europe. The same pressure exists in Latin America, but he added that he remains optimistic about the U.S. ability to adjust to such pressures. What he would worry about instead, he concluded, is the possibility of inflation in near future. Not only has the price of oil been rising sharply, but so have gold and other commodity prices. That is a strong signal of an inflation risk, he warned.

As the session drew to a close, panelists discussed India and China, where large segments of the population earn just under a dollar a day. Miles said he believed that low wages were due to the inadequate economic freedom in those countries. The remedy is not rich countries giving money to poor countries, he said, but that poor countries should open their markets and give more opportunities to their people, such as liberalizing people's access to capital markets.

Speaker:
Boone Pickens, Entrepreneur and Philanthropist; Founder, BP Capital

Moderator:
Brian Sullivan, Anchor, Bloomberg Television

Boone Pickens' investment firm, BP Capital, has recently racked up returns of 700 percent and 2000 percent in its equity and commodity funds. With performance like that, it may be wise to listen to Mr. Pickens' opinions on the commodity markets that he has played so well over the years.

Brian Sullivan from Bloomberg TV interviewed Pickens in front of a crowd of 100-plus on topics ranging from oil supplies and alternative energy sources to President Bush′s plans to ease energy prices. Pickens, who has been in the energy and investing businesses for decades, provided a glimpse of the vast knowledge and insight that have made him so successful in these fields.

Key projections from Pickens included oil reaching $80 per barrel before falling to $60 (if that happens at all); growth in nuclear power generation in the United States; a resurgence of coal; a downward revision of world oil inventory estimates; and increasing oil prices until oil consumption falls below the current supply level of 85 billion barrels per day.

Bullish on many alternative forms of energy, Pickens believes ethanol, natural gas and nuclear energy will become more economical and play a larger role in U.S. energy consumption. Pickens himself is in the business of selling natural gas as fuel to waste-management firms and other operators of transportation fleets.

Just prior to Pickens' presentation, President George W. Bush announced a plan to address and control fuel prices. Pickens took a skeptical view of the likelihood that Congress would act upon such a plan. He also related some of his own discussions with government officials concerned with the energy prices facing consumers, as well as the gasoline taxes Pickens himself recommends. Pickens compared U.S. gasoline prices to the much higher prices found in Europe as support for such a plan.

As far as his favorite potential investment areas: coal and Canadian oil sands top his list of interesting ideas.

Moderator:
Glenn Yago, Director, Capital Studies, Milken Institute

The vast majority of the wealth creation in history has come over the past 200 years. These improvements have resulted, said moderator Glenn Yago of the Milken Institute, from technological innovations and financial innovations that have allowed for more efficient deployment of capital, and they have given nations, companies and individuals the ability to manage risk. With these thoughts in mind, a distinguished panel of financial innovators shared their ideas regarding the financial innovations that would unlock more value and generate further growth in the global economy.

Myron Scholes, a Nobel laureate known for his work in valuing options, began the panel by noting that many financial innovations result from major economic shocks. This idea drew widespread agreement from the panelists, who noted that one recent shock, Hurricane Katrina, has demonstrated the need for many new types of financial products.

One area of development, said Lewis Ranieri, is for private insurance for catastrophic events like hurricanes. As private insurers debated whether hurricane or flood insurance should cover Katrina's damages, and government agencies responded slowly, many small and medium-sized businesses collapsed because they did not receive the bridge financing required to survive. Financial innovations like the securitization of tax credits for low-income housing development could further improve the pace of the rebuilding effort, noted Yago.

Another source of financial innovation is regulatory change. Richard Kauffman of Goldman, Sachs & Co. shared that the first Basel Accord, which provided a regulatory framework for bank reserves, had the unanticipated consequence of widespread securitization. The second Basel Accord, if passed, would allow banks to allocate capital according to internal risk models rather than external rules, and has the promise of spurring further innovations to mitigate risk and manage a portfolio of assets. Building on these comments, Ranieri noted that the second Basel Accord has been stalled for nine years because of concerns over the widespread innovation and change it may unleash.

Many of the most celebrated financial innovations have been in the area of risk management and hedging, and corporate activities to manage financial risk were a source of much discussion. Panelist Michael Milken shared his concern that many industrial operating companies, like General Motors, have largely become financial companies with their vast financing activities and pension plans.

"We need to move industrial operating companies back to operating companies," Milken said, by unloading their financial businesses to companies better suited to managing the risks of these portfolios. One important innovation to improve the management of pension plans and other financial portfolios, noted Kauffman, is a liability management industry. Asset managers are evaluated according to equity market performance, but pension and other liabilities may not be tied to the same indicators as the assets that support them. In the discussion of corporate risk management and hedging activities, the panelists also expressed concern that the market may not be rewarding companies for hedging their risks, even though such actions may increase the return on invested capital. Kauffman noted that hedge funds, which focus on the return on invested capital, may be changing this market dynamic and rewarding risk-reduction activities. As Scholes and others responded positively to the question of corporate hedging activities, Milken cautioned that hedging activities were not worthwhile unless corporate managers were qualified to understand and evaluate their risks.

Myron Scholes also noted that financial innovation would be supported and encouraged by a better corporate accounting system. The current GAAP accounting system, he said, "makes no economic sense" because it does not reflect the innovations that have taken place. Pension plans and hedging activities are not accounted for on corporate balance sheets. By keeping these off the balance sheets, their perceived importance is diminished. Such an antiquated system, says Milken, encourages rash decisions by managers with little understanding of their risk.

From new accounting systems to new insurance products, the financial innovations session was filled with exciting ideas. These new ideas have the potential to unlock and create value, just as option markets, high-yield debt and the securitization of mortgages created value and generated economic growth over the past 30 years.

Moderator:
Kenneth Morse, Senior Lecturer and Managing Director, MIT Entrepreneurship Center

Tommei Tong of TOM Group explained that finding the right local partner and understanding the unique aspects of doing business in China are crucial to success. For example, she said, one key part of the Chinese business world is the dominance of the government. As the panelists all pointed out, in order to succeed in the Chinese market, entrepreneurs will need to adjust to this dynamic and work with the government, rather than try to avoid interacting with officials.

In response to an audience question, the panelists pointed to the opportunities that the upcoming Beijing Olympics represent, and again emphasized that in order to take advantage of those opportunities, companies will need to adjust their strategies and products to the Chinese market.

The panelists have different backgrounds and histories, but all seemed to find the challenge of entrepreneurship in China′s emerging market "addictive," as Fredy Bush of Xinhua Finance described it. In addition, all seemed energized by the changes they have seen in China in recent years. Edward Tian of China Netcom described China as "hungry to be modernized," and others agreed that China is increasingly governed by a more uniform set of nationwide rules and regulations, which will improve the ability of companies to work in all regions. There was also a consensus that the capital market in China is overheated, and that there is more money available than there are entrepreneurs to take advantage of it.

Moderator Kenneth Morse of MIT brought up the issue of the shortage of professionally trained managers in China, and Tian agreed that he considers this a major challenge. Although there is no lack of opportunity for workers, he said, managers in China need more training in budgetary issues, performance review and management.

An audience member pointed out that a related but opposite issue is not just attracting, but retaining workers, especially since many of them may want to become independent entrepreneurs. The panelists agreed that offering stock options is a good way to tie employees more closely to a company, but they also agreed that people work for more than money. Bush pointed out that employees need to feel that their voices are heard and that the company is going somewhere. At the same time, Morse mentioned that employee spin-offs of new companies is not necessarily a bad thing, since these spin-offs are the drivers of growth and innovation.

The panelists offered advice throughout the session to those interested in entering the Chinese market: Believe in your company and have patience; be willing to take risks; be open to doing business with the government; find the right business partners and/or local managers; and do enough research to understand the local environment.

Moderator:
Adebayo Ogunlesi, Executive Vice Chairman, Chief Client Officer, Credit Suisse

Inadequate infrastructure is a critical challenge facing both developing and developed countries, the panelists on this session agreed. Decades of underinvestment, coupled with rapid economic growth, have resulted in a projected demand for billions of dollars of new infrastructure.

As the public sector has become increasingly unwilling or unable to fund these investments, private-sector project financing has often filled the void. And not surprisingly, infrastructure projects are becoming an important source of revenue for private companies. As Colleen Harkness of Global Growth Market Groups noted, the infrastructure division at GE now accounts for 35 percent of total revenues, and this percentage is expected to grow in coming years. As GE increases its efforts in these areas, she said, it is keeping in mind the lessons learned from prior efforts, including the importance of a strong local presence and of making targeted, small investments.

Although it is tempting to think of infrastructure as a developing world issue, Kevin Klowden of the Milken Institute was quick to point out that it is an issue for the developed world, as well. For example, Klowden explained that the infrastructure investment in California is far below the levels necessary to match economic growth and sustain the lifestyle that Californians are accustomed to. However, the private sector is often hesitant to provide project financing because of the stringency of environmental and other regulations and the challenges of complying with these policies.

Peter Rigby of Standard & Poor's echoed the significant impact of the political and regulatory environment on the attractiveness of a project finance opportunity. In addition, he said, he generally looks at a number of other factors, including the fundamentals of the technology, the quality of the construction contractors, the contract structure (e.g., debt structure and liquidity), the legal structure, whether the project is bankruptcy-removed from the parent, the counterparty risks and the underlying economics of the project.

David Rogers of the law firm Latham and Watkins reiterated the importance that the legal framework and structure can have on an investment. He cited the failure of merchant generators as a prime example: Deregulation left the companies with a "giant unhedged position" of capped revenues and unlimited exposure on the cost side, which combined with Enron to create a disaster.

All the panelists agreed that private-sector financing of infrastructure projects has tremendous potential to address many of the world's infrastructure needs. In fact, the model has worked surprisingly well, even in seemingly "dodgy" geopolitical environments. Nonetheless, the model is not a panacea, and many challenges remain. Human capital and the availability of skilled labor are often major constraints. And the project finance model works only when the economics do, which may not help address the infrastructure needs of the poorest of the poor. Finally, the country risks and potential for sovereign interference may make even economically feasible investments unattractive overall investments.

They agreed that the challenge for private project financiers, the investment community and governments will be to work together to address these issues.

The Milken Institute will preview its upcoming Mind-to-Market study, which examines the technology transfer and commercialization of university-developed intellectual property on a global basis, with a particular focus on biotechnology. The commercialization of biotechnology research from U.S. universities led to the formation of this industry, but research and commercialization efforts have gone global as most nations see it as a catalyst for creating knowledge-based jobs. The study will answer such questions as: How important are national innovation policies in spurring successful research? Which universities lead in biotechnology research? Who are the leaders in patenting activity? What role do investments in human capital in university technology transfer offices play? What are the economic returns to "star scientists?" Is there support for what countries like Singapore are doing to lure top researchers? Learn about the Institute′s novel approach to more accurately measure the professional technology transfer manager′s contribution.

Preregistration for this invitation-only event is required. For information, contact the Events Department at 310-570-4605.

Moderator:
Mark Azzopardi, Head of Insurance and Pensions, Global Risk Solutions, BNP Paribas

The panel, moderated by Mark Azzopardi of BNP Paribas, discussed the current pension accounting and disclosure rules, their incentive structure and potential changes to the system. The main issue addressed by the panelists was the large mismatch between the assets in the pension funds and their liabilities.

Bradley Belt of the Pension Benefit Guaranty Corp. started the session by exposing how the current system rewards companies for not properly funding their pension liabilities. He exposed some of the moral hazards that the implicit government guarantees create, such as the under-funding actually being a form of zero-interest borrowing on behalf of the company.

Frederic Brace of United Airlines shared his views on the inability of companies and unions to effectively manage pension funds. He proposed that employees use professional, private pension fund managers, instead of the current company-based system.

Jeremy Bulow, a professor at the Stanford Graduate School of Business, emphasized how the current system still allows companies to give out large future benefits without significant impact to their financial statements. He proposed that the first step to stop the problem from growing is to mandate that all new benefits must be fully funded.

Jonathan Rosenthal of Saybrook Capital criticized the current system for restructuring pension obligations, which basically require a company to reach an all-or-nothing deal with its pensioners. He also exposed the system's lack of information disclosure. Pensioners rarely know the funding status, level of risk or asset-allocation strategy of their funds, even though companies and unions do.

The panelists proposed different measures to address the problem, ranging from changing the regulatory treatment of pension funds to those of banks or insurance companies. They also proposed changes in accounting procedures so as to disclose to pensioners and investors a more accurate picture of their funding status.

Speaker:
Alvin Toffler, Author, Futurist; Principal, Toffler & Associates

Moderator:
Michael Intriligator, Professor of Economics, Political Science and Public Policy, University of California, Los Angeles; Director, UCLA Center for International Relations; Senior Fellow, Milken Institute

Just when you thought that you understood the economy, Alvin Toffler turns the traditional model on its head. Well, maybe not on its head, but in his new book, Revolutionary Wealth, Toffler suggests that the classic economic model ignores a hidden economy, the "non-money" economy. The "wealth system" he writes about is the first attempt to describe how the non-money and the money economy interact with each other. He believes the "wealth system" will be a change on the order of the industrial revolution, which changed society as we know it.

Toffler elaborated on the non-monetary economy by using the example of education. How many people went to "computer schools," he asked rhetorically. Then he reflected on an individual′s first exposure to a TRS-80 computer from Radio Shack in the 1970s. After the individual had purchased the computer, taken it home and read the manual, it still seemed that there wasn't a whole lot new owner could do. Thus, individuals searched for the "computer gurus," who were in actuality "anyone who had bought it [the computer] a week earlier" because computer schools didn′t exist. People are educating each other all the time outside the confines of the established system, he said.

A key component of this non-money economy is the concept of the "prosumer," he explained. These people are both producer and consumer of goods and services. During the talk, Toffler elaborated on two key concepts in his model: outsourcing of non-monetary work and marketization and demarketization of non-money work.

Toffler believes in three types of jobs in one's life. First, there is the full-time job one goes to every day. Second, there is one's domestic job (e.g., washing dishes). Finally, there is the third job, the outsourced job. These jobs are the jobs the corporate world outsources to the consumer, such as Fed Ex making the consumer track his own package rather then having a customer representative perform the job. He does not claim that this type of outsourcing is a bad thing, but rather that it is excluded in the economic analysis since it′s a "job" that is non-monetary.

Many individuals contribute to the non-money economy. We see this every day where people work in their homes, have hobbies and volunteer. Toffler claimed that these jobs are constantly being brought into and out of the marketplace and cited the gaming industry, Famous Amos and Linux as examples of hobbies that are now in the money economy. In contrast, for cases of demarketization, he cited innovations like Napster and Skype, an Internet telephone company.

The session wrapped up with a series of question from the audience. Two of the most interesting questions were about the role of science and technology in the new model and a deeper question: "Is the non-monetary economy a new concept?" Toffler said he believes that science is under attack. When he was child, he said, scientists were heroes. But a different picture exists today. Furthermore, he said he worries what repercussions the lack of interest in science will have for the future. The role of a scientist, in his opinion, is to question life and society, and he noted that Noble Prizes are won by challenging and refuting prior truths. The critical analysis of life helps drive the economy, and without the questions, we would not be where we are today.

Finally, an audience member questioned whether the non-monetary economy is a new concept? During the Middle Ages, he said, there was little use of a monetary system. Toffler agreed with the comments but noted that he doesn't believe that history repeats itself. Things may have the same characteristics, but the environment in which these events happen matter. Even though terrorists existed in the past, the fact that terrorist could have weapons of mass destruction today changes the implications.

Moderator:
Christopher Ludeman, President, U.S. Brokerage, CB Richard Ellis

"Real estate is about as inflexible a market as you can get," said Leslie Whatley of Morgan Stanley. This inflexibility leads to market rigidities that inhibit market efficiency. For example, if a firm suddenly needs additional space capacity, it may face market shortages, especially if the demand for corporate real estate is cyclical. Therefore, the firm must plan ahead. One way is to hoard office space so that the firm can have spare capacity to grow. Whatley argued that this was a sound strategy for many firms because, as she noted, "I′d rather be long a little bit than be short of space."

Although such rigidities persist in the corporate real estate market, new financial innovations are helping to unlock the value of these assets from the balance sheet. Thanks to new forms of insurance, several manufacturing firms now have greater real estate value than operational value. When AIG stepped into the market for environmental insurance, this made contaminated property attractive. Ten years ago, these contaminated properties were unattractive because the downside risk was too high, explained William Lindsay of Coast Capital Partners. Now that stop-loss insurance is available, these properties have potential market buyers.

The key to improving efficiency in the corporate real estate market may be to match firms' real estate needs with the needs of financial markets. Lindsay recommended that firms strip out the income flows from their real estate assets to try to make cash flow as predictable as possible. He said that predictable cash flow "is most important to financial markets."

Yet many firms have unique needs that would have difficulty following such a strategy. If the financial structuring behind a real estate asset becomes too sophisticated, it can impair the value of the asset. Whatley argued against layering too much "fancy stuff on top" because at the end of the day, the land serves a business purpose. Too many financial instruments added on top of an asset can reduce the flexibility of an asset. This can cost the firm dearly in the future if it cannot sell an asset because of the structure of the financing.

In addition to the financial structuring behind a real estate transaction, firms must also pay attention to the human capital considerations. For example, Whatley said, "If you put real estate in the wrong place and human capital does not want to go there, you lose that human capital." If the firm's employees do not want to relocate, then the firm must find new employees, which can be a huge cost consideration. Therefore, human capital must be part of any corporate real estate decision.

Not all the issues are business-related, however. Another major factor is regulation. Phil Cyburt of Cyburt Hall Holdings talked about the effects of Sarbanes-Oxley regulation on smaller companies that lack the basic infrastructure to face these regulatory "diversion costs." These regulations have distorting effects, argued Lindsay. He called it ironic when regulations designed to preserve liquidity have the perverse effect of making markets less functional.

Despite these new regulatory challenges, Lindsay predicted that the cost of capital for real estate will come down. He pointed out that many deals fail to materialize because of a lack of financing due to excessive risk. Current private equity investors are unwilling to hold large risks unless they can charge large premiums to cover the risks. But in the near future, private equity groups specializing in real estate will be going public. This will create blind pools of capital for private equity investments. The result will be "deeper markets" with less need for large-risk premiums because the risk will be pooled across a broader market.

Moderator:
Jack Leslie, Chairman, Weber Shandwick Worldwide

Africa is made up of 52 countries with 750 million people, and posted a GDP of $793 billion in 2005. Historically, the continent has been used by developed countries for extraction of platinum, gold, zinc, copper, silver and bauxite. Yet more attractive investment opportunities exist and are ripe for development.

Teresa Clarke, a vice president at Goldman, Sachs & CO. said she expects Africa's real growth to continue to compound at 4 percent annually. The growing African economy will continue to provide a positive environment for foreign direct investment, she stated, adding that in the past three years, Africa has attracted $26 billion in total foreign direct investment.

On the whole, foreign direct investment has primarily focused on the financial and cellular technology industries, with England being the largest provider of foreign direct investment, at $12 billion. The dollar-denominated return on these investments has been better than the returns in many developed countries around the world over the same period, Clarke said. African countries that have primarily contributed to above-average returns were Egypt, Nigeria, South Africa, Tunisia, Ghana, Botswana and Morocco.

Still, foreign direct investment in Africa is not without its risks. Harold Doley, an investment banker in Africa, identified the main pitfalls to investment performance as the shortage of good managerial leadership, prevalent corruption and the lack of a well-functioning legal system that enforces property rights.

Of the world's 30 least hospitable countries for investment, 14 are in Africa. Still, Doley said he remained positive on Africa because of its ability to deliver commodity inputs to China and India′s growing economies. China has invested $3.3 billion in Angola in order to secure a future source of oil, he said. And the flow of foreign direct investment into Africa's infrastructure from China and India will enhance Africa′s future growth prospects.

Venture capital activities have also increased in Africa. Rodney MacAlister of the African Development Foundation said he has been able to pool capital from African governments and persuade the U.S. government to make a dollar-for-dollar matching contribution for investment in African businesses. This venture capital pool has been able to grow because African companies have successfully returned capital back to the fund, which can then be used for future African investments. MacAlister said he thinks venture capital opportunities will continue to increase across the African continent as its infrastructure expands.

The United States has not been a large player in foreign direct investment of Africa in recent years. Stephen Hayes of the Corporate Council on Africa suggested that the United States has missed out on many investment opportunities on the continent because U.S. institutional investors are not willing to assume risk exposure of African countries. To remedy this problem he said, an institution such as CalPERS (the California Public Employees' Retirement System) needs to explore investments in Africa, rather than taking a passive role in an emerging market fund that has little exposure to the continent.

Overall, the panel expressed a strong positive outlook on Africa's future prospects and continued growth of 4 percent per annum. The majority of these gains are expected to come from Egypt, Nigeria, South Africa, Tunisia, Ghana, Botswana and Morocco, which are making progress to solve government corruption, low workforce education and undeveloped infrastructures. In the near future, the panel members agreed, Africa will further develop its consumer markets for technology goods and fuel the development of India and China.

Moderator:
John Fishel, President, Jewish Federation Council of Greater Los Angeles

The Milken Institute has been closely involved with several partners over the past year in accelerating a creative interplay between philanthropists and social investors seeking more effective ways to resolve inequities in Israel's social, economic and environmental development. This roundtable will coordinate an exchange between these innovators. We will discuss the progress and challenges in crafting effective programs and policy development to support equitable changes and economic growth in Israel. For information, contact the Events Department at 310-570-4605.

Moderator:
Paul Gigot, Editorial Page Editor, The Wall Street Journal

Paul Gigot, editorial page editor of The Wall Street Journal, moderated a lively debate between Jeremy Siegel of the University of Pennsylvania's Wharton School of Business and Michael Milken, chairman of the Milken Institute. Ranging from asset prices to individual behavior, the panelists discussed the economic and social impacts of the retirement of the "baby boomers," those born between 1946 and 1964.

Siegel, addressing the aging trends in demographics, posed two questions: "Who will produce the goods?" and "Who will buy the assets?" He argued that productivity and immigration alone would not be enough to prevent both the retirement age from rising dramatically and a large downturn in the asset market.

He suggested that a natural and healthy trend would be for younger nations, such the BRICs (Brazil, Russia, India and China), to provide the goods in exchange for assets in the developed world, i.e., maintaining or expanding the current account deficit and capital account surplus.

Milken emphasized the impact of technological development and deployment on wealth creation. He predicted that the deployment of financial technology on the developing world would unlock a large amount of dead capital and propel growth. He also argued for the importance of medical advances and their impact on the quality of life, longevity and wealth, estimating that the cure of cancer alone could add four years to U.S. life expectancy and $50 trillion to the current stock of wealth.

The debate evolved into a discussion of extended life expectancy, more specifically, the question of how long individuals would be willing to work before retiring. Siegel maintained that recent increases in life expectancy have not been followed by increases in the retirement age. Milken suggested that new technologies, such as distance learning, could lead to different types of work and extend the effective retirement age.

Both panelists were emphatic on the negative effects of protectionism to both the developed and the developing worlds. The free flow of capital, goods and ideas, they stated, would play an important role in balancing the different demographic trends.

Moderator:
Edward Luce, Washington Commentator, former South Asia Bureau Chief, Financial Times

India is in a time of great market boost, similar to China. Comparing the differences in types of growth, and the differences in political structures and how they affect their country's development, the question is posed: Is India the next China?

The remarkable growth in India is undeniable, according to Karan Bhatia, the deputy U.S. trade representative. He pointed to the growth in trade markets and the changing attitudes of policy-makers and their approach to domestic markets and policies.

However, while there is liberalization and progress in select areas, change is missing in retail and financial services. Bhatia said that if changes are to happen in these areas, we must wait another five years to see them.

While having a democracy brings about many positive opportunities for India, Bhatia also suggested that a balance between the governments of India and China would be the ideal situation. For example, infrastructure changes occur rapidly in China, while India continues to be littered with poor-quality roads and airports. India also needs to find a way to deal with the bureaucratic processes, which have hindered growth.

Another challenge is that while business is growing, 700 million people are still in the rural sector. Bhatia said he does not see agriculture as India's future, due to its lack of efficiency, compared with the sector in other countries. He said he believes India will instead become a service-sector-based economy.

During the past 16 years, Harpal Randhawa of Sabre Capital Worldwide has seen three periods of growth in India, one of them being now. Domestic demand is up, he said, exports are up, and more private equity money is entering India at the ground level. And he believes things will continue this way for a while.

The best chance for sustainable growth, he argued, will occur if the government removes itself from business. Other roadblocks for growth include the lack of infrastructure and the fact that it is a high-cost economy. Because of these problems, Randhawa predicted, companies are likely to move away, frequently to China.

Growth will be slower in India than in China because of democracy, but growth-rate comparisons should adjust the numbers for value-add to get a truer sense of the changes occurring, said Randhawa. Large businesses that hope to enter India should be willing to tailor their offerings to the market, even though the Indian consumer is changing.

The government has done almost nothing while India has grown, said Joseph Sigelman of OfficeTiger LLC. As soon as things liberalize, money will flow in, he predicted. The population of India is 1.2 billion, and while there is much attrition and wage inflation, he still has 40 people applying for each open position in his company. Thirty-nine of these, he said, are not qualified educationally. Other panelists argued, however, that it was not a case of lack of education, but cultural differences and intimidation during the interview process. While India is likely to grow in the global scene, Sigelman pointed out that foreign direct investment needs to be selective and that companies should not forget that they still need manufacturing companies in order to employ unskilled laborers.

Likening India to the United States at the turn of the century, Ramesh Vangal of the Katra Group said there is great risk, but also great opportunity. While China is driven by FDI, India receives less than 5 percent, so the opportunity for foreign investment is good. Indians are entrepreneurial, and the domestic market is strong. Companies should go after markets and buy brands, move out of the big cities and invest in training and infrastructure.

While most of the panelists pointed out the weaknesses in the Indian infrastructure as a hindrance to growth, they all saw a positive future. Bhatia predicted that as long as the government is willing to adapt, in 15 years we will see the United States, China, and India as the large economic powers. Sigelman claimed that while democracy is slowing some aspects of growth, democracy will also enable India to surpass China.

Moderator:
Lewis Feldman, Chairman, Los Angeles office, Goodwin Procter LLP

Has the real estate boom of recent years come to an end? Worse yet, are we at a valuation peak that will soon give way to a sustained bear market in U.S. real estate markets? This was the primary question addressed by the four panelists at this session.

The panelists represented the leaders in the hotel, office, retail and residential sectors of the U.S. real estate market. Sam Zell of Equity Office Group, David Simon of Simon Property Group, Stuart Miller of Lennar and Barry Sternlicht of Starwood Capital shared their views on the questions of real estate valuation, macroeconomics, international real estate markets and the capital markets.

The key question of real estate valuation provided ample opportunity for debate among the panelists. Although all four experts were optimistic about certain areas of the real estate markets, Sam Zell and Stuart Miller took a more bullish stance, with Barry Strenlicht and David Simon providing a more tempered view.

Miller looked to economic and population growth, as well as land scarcity in population centers to support his view of increasing land values in the future. Zell echoed this view of supply-and-demand factors, and pointed to the growth in liquidity turning to real estate to achieve yield objectives.

Sternlicht chimed in that "this is too bullish" and focused on increased leverage levels and the low cost of debt as hints of an overheated market. Simon agreed and added that retail properties, in particular, had benefited from high rents and high yields on development. He said he sees these results declining in the near term, as yields begin to approach the lower yields found in other sectors of the real estate markets.

All four panelists found technology to be an integral part of their operations, affecting either their marketing, production or both. Zell said that technological superiority provides a strong competitive advantage in his Mexican homebuilding business and that equity will continue to succeed in this market as long as such an advantage persists.

After a rousing discussion covering many key issues of the current markets, moderator Lewis Feldman of Goodwin Procter LLP asked the question many audience members had been waiting for: "What is your favorite type of real estate asset now?" Zell chose Brazil; Miller chose scarce land in growing U.S. coastal markets; Sternlicht favored European properties, such as hotels; and Simon liked strong super-regional malls.

Moderator:
John Cavalier, Managing Director and Chairman, Global Energy Group, Credit Suisse

Panelists explored the need for renewable energy sources and the future landscape of alternative energy in the United States. Energy, particularly affordable and sustainable energy, is undoubtedly central to global economics and well-being. As moderator John Cavalier of Credit Suisse noted, "The economic dislocations of high energy costs reverberate through the entire economy."

The group explored four imperatives for alternative energy sources. First, the dynamics of supply and (high) demand mean that the current scenario is unsustainable. "There's no question from a supply-and-demand perspective that demand is increasing by extraordinary rates," observed Daniel Weiss of Angelino Group LLC. Current oil prices are an obvious symptom of this issue, he said.

Second, the aging infrastructure of U.S. energy production and distribution means that the present system must be updated, likely in favor of renewable sources. As an example of the outdated infrastructure, panelists mentioned the limited oil refining capacity the United States. Indeed, the last refinery built in the United States was in the 1970s; it is unlikely that new ones will be built. The New York blackout of 2003 was cited as a symptom of the problem.

Panelists agreed that the environmental issues, particularly global warming associated with traditional energy, sourcing are a widespread and enduring concern.

Finally, the panel members discussed the geopolitical incentives for alternative energy. The growing American consensus is that the United States should be less dependent on foreign oil, given increasingly complicated politics of doing business with the oil-exporting countries and the concerns regarding national security.

While the reasons for establishing alternative energy sources are clear, the industry is just beginning to develop. Alternative energy includes wind, solar, geothermal, biofuel, clean coal and fuel cells, among others. At present, alternative energy constitutes just 6 percent of U.S. energy consumption; globally, this total is 12 percent to 13 percent. Overall, panelists expect this must and will increase dramatically in the coming years.

The U.S. government's role in this changing landscape will be significant, the panelists agreed. In order to foster development of the industry, the government should set standards for alternative energy sourcing (such as the required ethanol content in gasoline); provide financial (loan) guarantees for the more expensive infrastructure needs regarding alternative energy development; and continue existing tax credits and incentives (such as the $0.51 per gallon incentive for ethanol). As the industry develops over the long run, the government′s role in the industry is expected to dissipate.

Overall, panelists were optimistic about their growth expectations for alternative energy. As Weiss noted, "Real companies with real products and real profits are solving real problems [already]." Moreover, they said that cross-border learning would be essential to developing a vibrant alternative energy industry. Brazil, for example, was cited as an international leader. Alan MacDiarmid of the University of Pennsylvania commented that "we can learn a great deal from other companies and partnerships." Another panelist, Neil Koehler of Pacific Ethanol Inc., concurred that this global approach was necessary, stating that "In the future, there will be no one form of alternative energy that is suitable for any one country."

Moderator:
Brian Sullivan, Anchor, Bloomberg Television

Finance legends gathered to discuss a diverse set of finance and investing topics, ranging from a broad overview of the state of investing and the relative pricing of equities to the impact of innovation and the future of interest rates.

On the specific subject of the panel, innovation,, the group agreed that the long-term effect could be to decrease capital market returns to individual investors. As Matthew Bishop of The Economist explained, innovation in the new economy may increasingly pay dividends and returns to consumers in the form of lower prices rather than to the producers (and their investors through the public equity markets).

Scott Minerd of Guggenheim Partners agreed with this assessment, pointing to the example of the telecommunications bubble. While many criticized the significant investments in fiber optic cables as wasteful, consumers have benefited in the form of lower prices. In addition, Jeremy Siegel of the University of Pennsylvania's Wharton School noted that venture capitalists and early investors may benefit more significantly in the future, as less and less value is left for public investors in the secondary markets. Regardless of the distribution, Minerd argued, the relative re-pricing of inputs like fuel will drive continued innovation as long as tax rates are sufficiently low to make it profitable.

The panelists also engaged in a lengthy, passionate discussion about the state of the equity and bond markets. Siegel argued that stocks are currently the only major asset class priced at or near fair market value; real estate and bonds are overpriced. Minerd agreed; stocks, he said, are "relatively cheap" and at worst "fairly valued." He speculated that it might be due to investor memories of the bursting of the tech bubble, the fact that greater fortunes could be made in real estate in recent years and the tendency for investors to overweight historical trends.

Regardless of what one thinks in particular about the state of the equity markets, Arthur Laffer of Laffer Associates emphasized that the U.S. economy today is the best economy in his lifetime, and perhaps one of the strongest the world has ever seen. Policy clearly drives markets, and Laffer said he was optimistic that none of the four "killers of capital markets" -- higher taxes, bad monetary policy, bad regulatory policy or protectionist trade tariffs -- will interfere with the tremendous growth.

Though Minerd agreed broadly with this optimism, he expressed concern that the increasingly unequal distribution of wealth will engender unwise knee-jerk reactions that may compromise the economy′s health. In addition, he warned, it is important to take into account the potential chain reactions set off by events that occur around the world and which are too often underestimated by investors.

Moderator:
Rafael Pastor, Chairman of the Board and CEO, Vistage International

In the past 20 years, the value of goods and services traded worldwide has increased from $2 trillion to $10 trillion. In the past 10 years, cross-border merger-and-acquisition sales have increased from $185 billion to $607 billion in the developed countries, and from $42 billion to $161 billion in emerging markets.

Although it is the larger multinational firms that get a lot of press, "it′s the smaller ones that can benefit and often drive" this growth, said moderator Rafael Pastor of Vistage International. Small to mid-size businesses (SMBs, which are characterized as having 500 or fewer employees) are not only a major force in the domestic economy, but they are rapidly expanding their global reach. Today in the United States, SMBs represent 99 percent of employers, 70 percent of net new jobs, 51 percent of private-sector workers and 50 percent of GDP. And between 1994 and 2004, the number of SMBs exporting from the United States quadrupled. Of the SMBs that are global, 38 percent are involved in exporting, 17 percent are involved in importing, 17 percent are involved in outsourcing, and 29 percent have external offices.

So what are the advantages and disadvantages of SMBs, compared to the large multinationals? SMBs generally have less capital than, and lack the huge marketing muscle that larger firms have, said Oren Harari of the University of San Francisco Graduate School of Business. But they do have "nimbleness, agility, and speed," he added, which allows them to take advantage of lucrative but fleeting opportunities. "The most successful players have their eyes tuned way out there on the horizon," he continued, something that big companies may only be able to give lip-service to.

However, in the beginning stages, SMBs will "have to learn the hard lessons (that big companies already learned)" warned Scott Jarus of Cognition Inc., and if they want to survive, they need to be able to "pick themselves up and continue racing forward."

Another notable advantage of SMBs is their ability to have an intense regional focus. They can begin by developing a deep understanding of a particular region and then use this understanding to expand in intelligent directions. Larger multinationals with overseas headquarters and ties to a strong corporate culture may find it harder to develop the same focus.

According to a Vistage International survey of chief executives of global businesses operating in Canada, Malaysia, the United Kingdom and the United States, staffing was thought to be the No. 1 challenge facing their businesses. Since business operations and strategies are increasingly global, having a staff that is globally aware and multilingual has become critically important. But when it comes to the worldly education of young generations in the United States, said Harari, "we do an atrocious job." The panelists agreed that, especially in SMBs where the number of employees may be small, staffing must be an especially conscious part of company strategy.

In this wave of globalization, there are not only opportunities for U.S. firms to expand abroad, but there are also opportunities for foreign firms to come to the United States.

"Globalization is a two-way street … they′re going to be coming at us too," said Pastor, who asked the panelists what advice they would give U.S. firms who traditionally have not had a global focus. "Don′t be complacent … you cannot afford to be," warned Harari, adding that "you cannot assume a steady-state management." Firms must focus on the value proposition to customers and cannot assume that market positioning and branding will last without innovation and maintenance. Mary O′Hara-Devereaux of Global Foresight said firms must understand "the first-, second-and third-order effects of China, India, Vietnam, the Philippines" on their businesses, as the participation of these nations in the global economy increases.

Why go global? What with expansive and diverse markets of goods, services and labor, any firm may find opportunities for cutting costs and increasing revenues in both the short and long term. According to Dan Barnett of Vistage International, "the strategic reason to go global is growth."

Moderator:
Aaron Bernstein, Senior Writer, BusinessWeek

The World Trade Organization was created in order to reduce tariffs and non-tariff barriers among its member countries that trade services, manufactured goods and agricultural products. Reduced trade barriers should allow free markets to function more efficiently because competitive advantages of WTO member countries are realized. Consumers of each member country realize the benefits of free trade through lower prices of goods and services imported from countries that have competitive advantages in production of those items.

Yet even though the WTO has made progress, the Doha Round faces many obstacles.

The United States has led off the Doha Round by making an ambitious offer to reduce its agricultural export subsidies to other WTO member countries. This offer has been met with great skepticism from European member countries. Deputy U.S. Trade Representative Karan Bahtia said she believes that European skepticism has been caused by political pressure on its leaders, thereby resulting in a protectionist attitude of its agricultural industry.

To reach an agreement by July of 2006 and prevent a potential impasse, Paula Stern of The Stern Group feels the United States must use services as a central negotiating tool. She believes services are a better focal point for negotiation by the United States because that issue contains the bulk dollar value of the potential Doha Round agreement. The primary industry sectors that include services exchanged between WTO member countries are telecommunications and financial services.

Another obstacle facing the Doha agreement has been caused by U.S. unwillingness to reshape its current policy regarding steel dumping. Asian WTO member countries have been unwilling to negotiate serious agricultural reform of their markets until the United States changes its stance on the steel industry. Still, Greg Rushford, editor of The Rushford Report, sees the biggest dilemma to an agreement in the lack of a bipartisan support in the U.S. Congress. Still, in WTO previous rounds of negotiations, differences are not resolved until very late in the negotiating process.

In order to move toward a Doha Round agreement, the panel agreed that substantial political leadership must spark the progress and follow through on promises. In order to do that, WTO member countries must take action that coincides with the basic premise that free trade benefits its consumers more than the resulting costs of it workers.

Furthermore, the group stated, member countries must recognize that when another country with a competitive advantage provides goods or services to them, this also allows them to free up labor from a non-efficient use and apply it toward a sector in which they have a competitive advantage, which ultimately results in more goods and services produced for the world′s consumption.

While some industries related to a country's national defense may not be negotiable, the panel concluded, many opportunities remain for progress in the Doha Round and future WTO negotiations.

Moderator:
Fred McMahon, Director, Centre for Trade and Globalization Studies, The Fraser Institute

The Middle East Capital Markets panel focused on the development of efficient and liquid capital markets in the Middle East. Fred McMahon of the Fraser Institute led off the discussion by noting the importance of economic freedom in a society. He quoted economist Milton Friedman, who once stated that economic freedom in a society would eventually lead to political and personal freedom. Economic freedom is perhaps the major key to a productive society, he noted, because it leads to increased political stability, greater democracy, a reduced likelihood of conflict and greater economic gains. Additionally, economic freedom was identified as one of only two key variables that lead to human happiness (the other is life expectancy.)

Sheika Al Farsi of the Omani Centre stated that Middle Eastern countries need to institute economic reforms and economic freedom in order to generate the millions of jobs necessary to employ the surge of workers they will need to accommodate as their extremely young populations age.

One of the keys to economic freedom is an efficient capital market. Maryam Al-Hashar of the Capital Market Authority in Oman discussed the development of the Omani Stock Market, which today contains 142 companies with a market cap in excess of $15 billion. Hani Sari-El Din from the Capital Market Authority in Egypt discussed the Egyptian Stock Market. This market was one of the best-performing markets in the world last year, rising 160 percent. This was due in large part to a very strong macro-economic environment in Egypt. GDP growth increased to 5.1 percent last year, inflation dropped from 17.3 percent to 5.2 percent, and foreign direct investment increased strongly.

Neveen El-Tahri from ABN Amro then discussed Egypt.s performance from the point of view of a private market investor. She noted that Egypt.s capital markets had been developing since the peace agreement with Israel in 1979. Neveen also complimented Egypt′s Central Bank head for doing an excellent job directing Egypt′s macroeconomic performance. One extremely interesting observation she noted was that many Egyptian nationals living overseas are beginning to return home to work and invest. She noted that this is similar to what is occurring in China, and has been a significant factor in China′s economic success.

Robert Bush of Istithmar discussed his company's mandate to seek attractive investment returns around the globe. Robert noted that a key when investing in emerging markets is to find trustworthy partners. He talked about the difficulties in dealing with opaque or nebulous regulatory environments in some developing nations, and felt that partnering with people one trusts can help mitigate regulatory risk. He also responded to a question about the outcry over DP World′s attempt to manage ports in the United States, noting that while he was surprised over the outcry, it would not stop him or other investors from the Middle East from looking around the globe for investment opportunities.

The panel concluded with a brief discussion of the impact of terrorism on Middle Eastern capital markets. This is an area of primary concern for many investors considering opportunities in the Middle East. The panelists noted that following previous terrorist attacks in Egypt, investment interest among institutional investors actually increased as they sought out potential bargains. In the event of a severe terrorist attack or a sustained outbreak of minor terror attacks, there would probably be a halt in the progress of the development of Middle Eastern capital markets. Absent such attacks though, the group agreed, it is expected that capital market development will continue.

Speaker:
Thomas Wilson, President and COO, Allstate Corp. and Allstate Insurance Co.

Moderator:
Joel Kurtzman, Senior Fellow, Milken Institute; Senior Advisor, Knowledge Universe

Hurricane Katrina may end up being the most expensive catastrophe in U.S. history, with recovery costs exceeding what America spent on the Marshall Plan to rebuild Europe after World War II. Nine months after Katrina, its economic ripple effect continues to be felt. Meanwhile, this year marks the 100th anniversary of the 1906 San Francisco earthquake, which today would result in economic damage of more than $400 billion. The potential for widespread losses from mega-catastrophes is made worse by the combination of more people living in harm's way and the rising value of homes in disaster-prone areas. More than half of Americans now live in coastal counties, an increase of 33 million people since 1980; one-third of Americans live in areas exposed to major earthquake risk. When you factor in that about half of Americans' net worth is tied up in their homes, even retirements are at risk. This roundtable will explore potential national solutions - from the practical to the cutting edge - to better prepare and protect America from mega-catastrophes.

Moderator:
Glenn Yago, Director, Capital Studies, Milken Institute

Open recognition of the real risk of global warming has finally hit the table in the boardroom, and not a moment too soon, as both scientists and economists would appear to agree.

What was a major theme for many of conference panels was, in fact, the entire focus of this session, summed up by panelist Richard Sandor of the Chicago Climate Exchange with the succinct phrase, "You can do good and do well."

In this session, the panelists fleshed out this proposition in very concrete (or perhaps carbon) terms, demonstrating not only the success of their own firms, both in terms of emissions control and financial gain, but also suggested several ways in which market forces are providing powerful incentives for potentially limitless growth in this direction for businesses in all lines and across all borders.

Representing leaders in industry, finance and the rapidly developing climate exchange market, each panelist had hopeful insight to provide, based on his own experience on how saving the planet is not only possible, but profitable.

Beginning with the time-honored assumption that "as goes GM, so goes the United States," a mere nod in the direction of GM's current predicament provided the backdrop for the urgency with which leaders in the business community are turning toward green solutions in general, and to carbon asset markets, in particular. For the non-believers, Sandor pointed out that not long ago, the commoditization of debt was regarded as impossible. Now we have the commoditization of pollution.

Sandor explained that the general trajectory of government regulation was moving from no controls to what he characterized as the "one size fits all" controls of the 1970s and to the 1990 Clean Air Act, which for the first time targeted one environmental problem (acid rain) and one pollutant, sulfur dioxide (SO2). The subsequent success the act in dramatically lowering SO2 emissions led, even if only as an indirect consequence, to the establishment of opportunities for new financial markets, ultimately manifested in the Chicago Climate Exchange and later the European Climate Exchange.

Neil Eckert of the European Climate Exchange predicted a $2.3 trillion carbon market by 2012 but asserted that the liquidity required to foster continued entry from new sectors is dependent upon cap-and-trade legislation. He described the myriad opportunities for investment that caps provide to businesses seeking to meet emissions requirements and, in turn, trade carbon points, ranging from the energy needs of small businesses to the infrastructure needs of developing countries.

Sandor added to this that financial performance of publicly traded companies has been shown by market analysts to be influenced to a very real extent by their eco-performance, based on consumer preference. Tipping his hat to the increasingly popular theme of financial transparency, Sandor said "... in other words, now is not a good time to be a misogynist, homophobic, racist polluter in the world market."

Each panelist, when asked why he became involved in carbon trading, credited Sandor as both the inspiration and motivation, which would seem to go a long way toward emphasizing the importance of leadership and human capital in addressing the environmental problems facing the world today. Beyond their collective endorsement of Sandor's ideas, two reasons for involvement in this market were cited repeatedly: the first being necessity (cap), the second being opportunity (trade).

In the case of DuPont Co., according to Edward Mongan, the company′s director of energy and the environment, initial interest in reducing emissions stemmed directly from the Clean Air Act and the increased awareness in the early 1990s of the dangers of greenhouse gases. The realization that this could have potentially disastrous financial repercussions on DuPont's particular line prompted immediate action long before the company saw potential for financial growth through carbon trading -- which it eventually did, a point not to be overlooked.

In the first instance, however, merely in an attempt to meet tightening government regulations beginning with the Clean Air Act, DuPont enacted policies that reduced its output of greenhouse gases from 90 million metric tonnes in 1990 to roughly 25 million metric tonnes in 2003.

It also bears mentioning, said Mongan, that during the period from 1999 to the present, DuPont's emissions have remained relatively flat, but that production has increased by more than 30 percent. This would appear to imply increased efficiency in production, even in excess of what the figures on total emissions reflect, perhaps providing the emissions points that have propelled DuPont into a prominent position in the emissions market. Beyond the initial need to fall into line with government caps, the potential for revenue generation via emissions credit trading was a huge incentive, not only for DuPont's involvement in this market, but for its continued effort to decrease emissions levels.

Echoing Edwin Mongan's sentiments, Bill Marcus of Chicago Calyon Financial cited the sheer enormity of the market itself as his company's primary motivation for participation. As he explained, a certain level of liquidity in any given market automatically attracts other players to the field, regardless of their level of concern about the environment. By his estimation, the brokerage community's involvement in the carbon asset market has reached that point in its parabolic curve where it is poised to explode, with potential to become perhaps the largest financial market in history within the next 50 years.

Other ideas that were addressed on the subject of opportunities and challenges presented by a brand new asset class (such as carbon) included the creation of new bodies of experts who can analyze and study the role of such variables as weather, policy, new consumer bases, geographic borders and education on the development of the market and its efficacy, not only in financial terms but also in human and environmental terms. Increased attention from academia was called for in producing knowledge, especially with regard to the developing world, and Sandor announced that as of the previous week, the Chicago Climate Exchange had added its first Chinese company to the membership.

In response to a question from the audience about how to convince businesses to open carbon accounts -- in this case, based upon a disappointing meeting with a major player in the entertainment world -- Sandor and the other panelists suggested two strategies, one negative, the other positive.

It is indeed odd, Sandor pointed out, that for all of their lip service to environmental causes, there are currently no major Hollywood studios with carbon asset accounts, an example, he said, of what they call in Chicago a case of "all hat, no cattle."

Mongan suggested that the first thing would be to attract a given company's attention to its own carbon footprint. Running those numbers, which is not yet a standard practice, is frequently enough of an eye-opener to motivate a board of directors to move in a greener direction, especially in light of the likelihood of stricter government regulations.

Sandor added that along with risks posed by government intervention, there is also the potential for financial risk in the form of a class-action lawsuit from the effects of pollution, and in turn for related negative publicity. In the case of the particular Hollywood giant in question, he said, any connection between its emissions and associated health crises in children could be its undoing.

On the positive side, he added, the incentive for financial gain and the potential to be in the entertainment world what DuPont is in the chemical world, i.e., the leader, could prove to be the most powerful motivator.

Whether altruistic government regulation or profit-motivated innovation (or flexible and creative combinations of the two) actually has the potential to save the planet remains to be seen. One thing is apparent, however, and it is that potential exists beyond what might have been conceivable to most as little as five years ago. This panel not only demonstrated the enormous degree of change already occurring, but the ever-increasing opportunity for the business community as a whole to join this movement and increase its momentum.

Moderator:
Dennis Kneale, Managing Editor, Forbes

What happens when widespread adoption of broadband, advances in search, Web 2.0 applications, an explosion in content, and consumers' increasing demand for control of their media experiences all coalesce? How will this perfect storm of technology and entertainment change traditional media companies? How will technology companies need to adapt to stay in front of these powerful forces? Where will the real value be in the future? An all-star panel of leaders in the Internet and media will answer these and other questions about the forces reshaping the media landscape.