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Program - By Finance Track:

Monday, April 23, 2007

  7:00 AM - 8:25 AM

Financing Regional Infrastructure in Israel

Speakers:
Ehud Danoch , Consul General, Consulate General of Israel, Los Angeles
Ron Dermer , Minister, Economic Affairs, Embassy of Israel, Washington, D.C.
Carl Kaplan , Managing Director, Koret Israel Economic Development Funds
Yaron Kestenbaum , CEO, Israel Infrastructure Fund
Glenn Yago , Director, Capital Studies, Milken Institute

Moderator:
David Pollock , Senior Managing Director, Bear Stearns & Co. Inc.

During the Second War with Lebanon in the summer of 2006, northern Israel in particular bore the brunt of devastation from missile strikes. But even before the war, explained panelist Carl Kaplan of the Koret Israel Economic Development Funds, the region has been economically disadvantaged due to a "lack of credit and lack of infrastructure," and an over-dependence on tourism.

Northern Israel requires a large influx of capital to construct badly needed infrastructure critical to better integrating the region into Israel's economy, the panelists agreed. Additionally, economic development is needed to support and attract new jobs and growth, while stemming the out-migration that is draining the region of its most important resource, human capital. Moderated by David Pollock of Bear Stearns & Co., the session focused on discussing solutions to these problems in the form of innovative financing programs.

Los Angeles-based Israeli Consul General Ehud Danoch discussed the "enormous potential in the north" and showcased the many technology companies thriving in the region. He stressed that despite past insecurity, Israel's economy is booming and has attracted significant amounts of foreign direct investment. Setting the context for the remainder of the session, he explained how Israel has been facing pressures of a growing population and economy, and the need to better integrate the north into the rest of the country.

Ron Dermer Israeli Embassy in Washington, D.C., expanded on Danoch's statements and explained that the apparent contradiction of war and political instability beside extraordinary economic growth was due the fact that "Israel has gotten its fiscal house in order" and benefits from productive and innovative human capital. Over the past several years, he said, the Israeli government has engaged in "reverse tax-and-spend" fiscal policies, dramatically cutting taxes and reducing spending while adopting policies to privatize state-owned enterprises, foster competition and facilitate more public-private partnerships. He highlighted the nation′s stable monetary policy; adding that since Alan Greenspan left the Federal Reserve, "Israel has the best-led central bank in the world."

Israeli companies and citizens hold more patents than India and Russia combined, he stated, and the country enjoys the highest venture capital per capita in the world. "We can compete," Dermer stated, within Israel and around the world. Unfortunately, there has been inadequate investment in critical infrastructure in the north, and there is a need to leverage VC and philanthropy to provide innovative financing for infrastructure investment and provide credit to small businesses.

Glenn Yago of the Milken Institute, noted that while 58 percent of Israel′s exports are from the technology sector, that figure represents only 7 percent of employment. Yago led a recent Milken Institute effort to identify innovative finance solutions to aid economic recovery and development in northern Israel and discussed the method of using "innovation labs," collaborative sessions that bring together financial experts and representatives of relevant foundations. Some possible solutions include: development of a bond authority for infrastructure and public-private projects; expansion of Koret Israel Economic Development Funds for small-business development; development of a northern Israel small-business collateralized loan obligation; and the use of the Chicago Climate Exchange offsets program to raise additional financing.

Kaplan discussed his program, supported by the Koret Family Foundation, to leverage bank financing with philanthropic donations. This program is seen as a model for Israel that many would like to see expanded significantly. The program operates a revolving loan fund that makes incentive loans, ranging from $10,000 to $500,000 to small businesses. According to Kaplan, the program has funded 1,200 loans, supporting more than 20,000 jobs.

Yaron Kestenbaum of the Israel Infrastructure Fund noted that Israel′s infrastructure is not keeping pace with its economic growth and that the nation is facing an electricity power deficit. The Israel Infrastructure Fund is looking to bring additional private capital into Israel to help finance large infrastructure projects and has so far attracted over $100 million. Promoting the fund as market-grade investment, Kestenbaum touted anticipated returns in the double digits with relatively low risk because of the government's support of these projects and innovative financing programs.

One example of the potential success of the programs is Israel's Highway 6, a privately funded toll-road project, financed by 10 percent equity and private debt. One reason for the project's success was a government guarantee for 80 percent of demand. Travel demand is near anticipated levels, and the debt was commoditized and has generated profits for the original investors.

Pollock summarized the session, noting that potential venture investors and philanthropies are likely to embrace the proposed solutions because the conditions in Israel are very favorable. The government is willing and supportive, there is highly educated and innovative available human capital, and there are existing programs already in place.

  8:30 AM - 10:00 AM

Entrepreneurial Philanthropy

Speakers:
Teresa Heinz Kerry , Chairman, The Heinz Family Philanthropies
Michael Milken , Chairman, Milken Institute; Chairman, FasterCures / The Center for Accelerating Medical Solutions
Don Randel , President, Andrew W. Mellon Foundation
Carl Schramm , President and CEO, Ewing Marion Kauffman Foundation

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

"A problem is nothing but an opportunity looking for a solution." Quoting her late husband, Sen. John Heinz, Theresa Heinz Kerry captured the aggressive and altruistic mindset driving numerous philanthropic foundations and individuals to do their part in solving today′s biggest -- and smallest -- societal ills.

Entrepreneurial philanthropy, said Michael Milken, is about "individuals having the opportunity to change the paradigm." And beyond just individuals, "foundations historically have been the most critical institutions in advancing society," said Carl Schramm of the Ewing Marion Kauffman Foundation. Whether the issue is the environment, health care, education or the arts, entrepreneurial philanthropists and foundations are continually looking for better, quicker, and more effective ways to aid their cause.

In 1999 researchers at Boston College predicted that over time more than $41 trillion of charitable donations would come from World War II and baby-boomer generations. Although that number seems massive, the total is nearing the mark eight years later. Today charitable giving exceeds $260 billion a year in the United States. The largest portion of this sum has come from wealthy, generous Americans. Individuals have donated more than four times than the amount of foundations and corporations -- and fewer than 10,000 families have contributed more than 20 percent of all donations.

Don Randel of the Andrew W. Mellon Foundation captured the most important theme of the panel: individuals do make the difference. Government institutions, burdened with bureaucratic, budgetary and personnel restrictions, seemingly have not been able to fully address and solve numerous social issues, such as inadequate public education or unaffordable health-care coverage. And Milken noted that institutionalized structures are difficult to manage. As a result, many needs are left for individuals and foundations with greater physical and financial freedom. For example, Schramm noted that the Ewing Marion Kauffman Foundation helped construct 85 new schools in just two years by taking a business approach and starting a REIT and building bloc fund to do so. One would be hard-pressed to find this pace of achievement from any school district functioning on its own.

The panel touched on the clear dichotomy between massive, slow, cash-strapped government and small, fast, cash-rich individuals. Yet members also emphasized that the key to entrepreneurial philanthropy is finding how to best utilize and spend large sums of money to enact substantial change and, more important, not to do harm. The key to this, as Randel said, is investing in the right people and supporting the best ideas. Milken supported this sentiment, arguing that "the role of entrepreneurial philanthropy is to identify the individuals who have the ability to make these things happen." Beyond this, he said, it is the role of philanthropic foundations and individuals to accelerate the speed at which other institutions, such as government and universities, research and solve problems. As foundations and individuals unveil and discover solutions, larger institutions can copy them to effect more change.

"Entrepreneurial philanthropy isn′t about inventing new things to cure," said Randel, adding that "it′s about finding more effective ways to get people to think about things that matter in life itself." Some "things" that the panelists have been concerned with are the arts, an area the Andrew W. Mellon Foundation continues to support; health care, an issue the Milken Institute has addressed; and education, a subject in which the Heinz Family Philanthropies invests.

Panelists emphasized the important reality that entrepreneurial philanthropy has in effect transformed charity into a business. Simply put, philanthropy is a business, and -- as any entrepreneur or business person would -- individuals and foundations continually search for innovative ways to make their services more effective for and responsive. To do this, charitable giving has increasingly become more targeted, either toward a specific issue, such as cancer (Milken), or a geographic area, like Pittsburgh (Heinz). In addition, philanthropy is now being put to the same tests as business, in terms of accountability, transparency, metrics of success and return on investment.

The biggest challenge to the effectiveness and longevity of entrepreneurial philanthropy, however, is leverage and scale, and each panelist was asked why the presence of widespread philanthropy was, for the most part, only found in the United States. Citing the presence of tax credits for charitable giving, Theresa Heinz Kerry noted that philanthropy "is the great strength of America." Schramm agreed, noting philanthropy is what is "unique about America′s foundations and its essence," shaped by a history of exceptionalism.

Milken pushed the conversation a step further, arguing that the real key to the future of entrepreneurial philanthropy will be to persuade other countries to jump on board. "Can we see the international community doing similar things that we see in the U.S.?" he asked. The panelists agree that the opportunity exists; with the 1,000 richest people in the world controlling more than $3.5 trillion in assets, the ability of a few rich individuals to enact significant changes is clear, and with issues such as education or health care becoming more interdependent and international, it is likely -- and necessary -- that philanthropists around the world collaborate.

  10:15 AM - 11:30 AM

Hedge Funds: The Last Unregulated Frontier - But For How Long?

Speakers:
Marc Lasry , Founder and Managing Partner, Avenue Capital Group
Jon Lukomnik , Managing Partner, Sinclair Capital LLC
Robert Matza , Partner and President, GoldenTree Asset Management LP
Paul Roth , Partner, Schulte Roth & Zabel LLP

Moderator:
Jonathan Spalter , Chairman and CEO, Public Insight LP

Hedge funds have exhibited tremendous growth, quintupling to $2 trillion just over the past decade, while the size of capital markets only doubled over the same period. Hedge funds now account for one-third of the turnover of U.S. equities and for a much larger share in the trading of exotic instruments like derivatives. Many people expect the industry to reach $2.5 trillion to $3 trillion by 2010.

Not surprisingly, the Securities and Exchange Commission has maintained an interest in regulating the sector, but attempts have been overturned by an appellate court. In Europe, meanwhile, hedge funds are getting negative attention and press -- The Financial Times, for example, has published articles with such titles as "The Cancer of Hedge Funds" -- and are subject to some limitations.

Moderator Jonathan Spalter of Public Insight asked panelists whether "the industry needs more red tape."

Paul Roth of Schulte Roth & Zabel listed several possible reasons for regulating hedge funds: growth; systemic risk; the impact on trading markets; investor protection; and potential fraud. While systemic risk is an important issue, he argued, it should be the concern of the Federal Reserve, not SEC. Investor protection would be the most salient motivation for regulation among all possible reasons.

The discussion revolved around leverage and investor protection. Marc Lasry of Avenue Capital Group noted that the reason for the failures of LTCM and Amaranth was excessive leverage. LTCM was 50 times leveraged when it went down, he noted. Today most of the market operates at two to three times leverage, which means the industry is much less risky than it is popularly perceived. It should also be remembered, he said, that investors themselves can be levered, hinting at possible implications of regulation at the client level --"it all comes down to leverage." If the leverage is in the order of 10 times, the fund can easily go out of business. "If it′s in the order of two or three," he said, "that′s good."

Robert Matza of GoldenTree Asset Management, noted that the overall leverage in the market today is just a fraction of the level a decade ago and that not all funds exploit all forms of leverage. For instance, Matza's firm does not use prime brokerage leverage. Paul Roth agreed and added that today there are more tools at the disposal of managers and clients to deal with issues of leverage.

In terms of investor protection, Lasry emphasized that there is "already self-policing in the industry." If a fund does not perform well, it will have a difficult time keeping and attracting investors. Matza drew attention to the monitoring and disciplining roles brokerage firms play in the industry. Prime brokerages keep hedge fund assets, see their composition and performance, and can issue calls whenever necessary. He argued that a great deal of protection is built into the system in this fashion. Lasry expanded this line, providing the example of Bear Stearns, which will ask for more capital "at the smallest downtick." And rating agencies are watching like a hawk as part of the checks and balances in the system.

One needs to distinguish between funds investing in equities and those investing in bonds, advised Roth. A more interesting and more necessary distinction must be made between institutional hedge funds, around 350 in number, and those consisting of "two guys in a garage," he said. The latter are much more numerous, in the order of 10,000-12,000, and are not nearly as sophisticated as the former.

The new SEC rule of 2004 requiring hedge fund registration was overturned by the D.C. Circuit Court in 2006. The next step by the SEC would not involve an appeal, but an approach using alternative ways of regulating. Roth suggested that the target could be counterparty regulation addressing the ways investors and others do business with hedge funds.

Lasry noted that it's a fairly simple procedure to register with the SEC, and that sizable and reputable clients like CALpers value registration Thus, it's in the interest of serious fund managers to register. Jon Lukomnik of Sinclair Capital added that "it's great that pension funds are coming in since they discipline the market."

Lukomnik also said that the "idea that hedge funds are separate from the rest of the market is fallacious." He is especially bothered by "techniques to divorce economic interest from ownership interest." In his opinion, the whole basis of corporate governance is that marriage. He emphasized that a hedge fund is simply a legal construct -- but that the legal side has not caught up with the development of investment instruments.

There is bipartisan consensus in the Senate, but not the House, for regulation, explained Roth, adding that what happens at the state level remains a wildcard.

The panel concluded with general agreement that the industry will continue to "be attacked" and will eventually undergo regulation, not the least because of political motivations. The question remains, though, whether that regulation will be "smart."

  10:15 AM - 11:30 AM

Outlook in Global Leveraged Finance Markets: Where Will the Growth Come From?

Speakers:
Rod Davidson , Global Head of Fixed Income, Scottish Widows Investment Partnership
Aizaz Shaikh , Executive Director, Goldman Sachs & Co.
Ted Virtue , CEO, MidOcean Partners

Moderator:
Kathryn Swintek , Managing Director, Head of the U.S. Leveraged Finance Group, BNP Paribas

The growing thirst of the now $250 billion global private equity buyout funds, four times its 2003 appetite, is now a paradigm for demand-driven, higher-risks and lower-returns capital markets arbitrage -- with its axiomatic risk of who will be the last buyer and with its own paradox of opportunity -- even if potentially chaotic and predominately for the bigger players.

Not surprisingly, the panel consensus was generally that the classic bubble effects of money-chasing deals must soon be upon us. As with the classic bubble, there was no agreement on when, how and who. Indeed, there was also a general agreement that structural changes in the complexity of deals, and derivative players, will likely soften the blow as long as the public market can serve as the exit strategy for these private deals. (As if to underscore the timeliness of the panel, the Wall Street Journal announced on this same day the purchase of ABN Amro Holdings by Barclays for $91 billion.)

The most cautionary participant and advocate of the arbitrage model proved to be Rod Davidson, of the Scottish Widows Investment Partnership, who focused on interest rates as the best leading indicators and pointed out that just in the past year collateralized loan obligations (CLOs, derivative loan packages providing liquidity and risk spreading) increased by 193 percent.

While CLOs are distinguished from collateralized debt obligations (CDOs) currently on the front page because of the sub-prime loan concerns, concern was expressed about the parallels of demand-driven available capital going from the A deals to the B and C deals, and the spillover effects of bad results into the broader capital markets.

Davidson asked: What is the best tool for analyzing deals in the current environment? For example, should a deal be opportunistic, based upon a cycle of cheap money and attractiveness as a takeout target, or based on fundamentals? Ted Virtue of MidOcean Partners highlighted the short-term benefits of the derivative markets to smooth out the bumps, coupled with the newer, systemic, highly and variably structured transactions with all manner of diverse instruments in the same transaction. He cited the smoothness of the General Motors market landing last year as the result of these factors.

However, he also questioned when the risk -- "which someone owns" and which then becomes systemically part of the capital system in general -- would inevitably come home to roost, thereby highlighting a general concern with the mysteries of mostly private derivatives. His comments brought to mind Long-Term Capital Management's collapse and its then seemingly enormous $5 billion loss to certain segments of capital markets, and the recognition that every loss is someone′s gain.

Virtue also brought attention to what he considers the potentially greatest, most feared and least factored class of risks to capital markets -- "event risk," such as terrorism and natural disasters, which can potentially result in systemic meltdown.

Alzaz Shaikh of Goldman Sachs observed that "the patterns of capital and returns" that he currently sees are usually associated with a bubble. Indeed, he expressed surprise that default rates had not risen. His concerns were external leverage and financial risk that were out of balance, when compared to internal company risk; and the "compression" of risk and returns in a market that may not even require debt amortization or traditional loan covenant benchmarks, only the payment of interest. The suggestion was that you really have to be underwater to not even be able to pay interest, a situation that does not provide the traditional early warning signs. His conclusion was that "shorter-term windows" were the best way of judging returns. Moderator Kathryn Swintek of BNP Paribas presented graphics, and it was noted that though her data was only two weeks old, it may already be out of date. As discussion turned to country concerns, topics included labor, protectionism and regulatory environments, and Davidson suggested that the French Final Two Election might be a useful Western European bellweather. Virtue recommended the use of emerging markets for comparative purposes; for example, South Africa should be especially looked at comparable to a Western European economic model.

Ironically, the U.S. health-care industry was the specific regulatory concern, given the unknown impact of the 2008 elections on the industry, which is substantially based upon the cash flow of Medicare-type reimbursements, while accounting for 16 percent of GDP and only 8 percent of investments.

Davidson and Virtue also cited the cautionary example of China, which has $1.2 trillion in foreign funds reserves, 90 percent of that being in dollars, and allows the United States to run a foreign current accounts deficit. The question was: How will we feel when our assets are run by China?

  10:15 AM - 11:30 AM

North American Competitiveness: United We Stand, Divided We Fall

Speakers:
Marie-Lucie Morin , Deputy Minister of International Trade, Foreign Affairs and International Trade Canada
Roberto Newell Garcia , CEO, Instituto Mexicano para la Competitividad, A.C.
Deborah Wince-Smith , President, Council on Competitiveness

Moderator:
Zanny Minton Beddoes , U.S. Economics Editor, The Economist

Competition is the principal driver that sustains relationships between people, between businesses and between countries. For the past 13 years, for example, Mexico, Canada and the United States have worked together through the North American Free Trade Agreement (NAFTA) -- and in doing so have asserted North America's regional competitiveness.

The three countries have benefited in varying degrees from NAFTA. The U.S. economy has prospered from the movement of goods and services across its borders to the north and south. Mexico, which nationalized a large portion of debt in the 1990s, is continuing to look for areas for growth and investment. Canada, too, has benefited, drawing a $13 billion-plus increase in exports since signing NAFTA.

While the three-country relationship has prospered these past 13 years, the world has notably changed. September 11 created a trade-off between economic stimuli and security concerns. The rise of India and China has changed the dynamics of manufacturing goods and delivering services. And surging demands for energy are creating new markets for sustainable growth and innovation.

The challenge of first sustaining and then improving North America's competitiveness in the face of these trends, was the focus of discussion by a diverse panel representing the United States, Canada and Mexico.

Moderator Zanny Minton Beddoes of The Economist asked panelists to identify the main deterrents for foreign direct investment in North America. Attracting FDI is somewhat tricky, as capital tends to flow to more unregulated markets, she noted.

Roberto Newell Garcia of Mexico para la Competitividad emphasized that regulation is a "change agent" to promote efficient cross-border integration. Multinational companies seek to optimize high-value investment where government regulations are lowest. Deborah Wince-Smith of the Council of Competitiveness cited the punitive federal payroll tax in Guadalajara as an example of deterring investment. Investors, she said, went where tax burdens were marginally less or nonexistent.

In the energy market, the Mexican constitution strictly regulates the country's most valuable commodity, oil. As it stands, only the government can explore and produce oil, the this monopoly dissuades foreign investment and deters foreign research into alternative sources, such as natural gas.

Beyond regulations, regional competitiveness is also dependent on the ability to swiftly and safely move people and goods across borders. Garcia discussed how the development of North America's cross-border infrastructure goes hand-in-hand with trade. Ideas were discussed to enhance the movement of goods in a safe and expeditious way. For example, synthesizing border inspection and technological equipment would reduce high border security costs. A deepwater port servicing the surge of trade along the Pacific Rim could be funded through a regional North American effort.

Innovative rail systems connecting ports to distribution centers and cross-border interstate highways require both government and private investment. This collaboration brings potential for North America to set the standard for international travel and global commerce.

With infrastructure development comes the need for energy to power it. The regional competitiveness for North America -- or any region, for that matter -- boils down to energy. Marie-Lucie Morin of Foreign Affairs and International Trade Canada described Canada as "an energy superpower." But even with large reserves and conservative long-term energy exploitation estimations, a major gap between supply and demand of fossil energy is expected by 2020.

With this energy gap comes ample opportunity. Innovation is the driving force in the U.S. economy; the Department of Energy is unleashing huge amounts of money on sustainable energy innovation. Of late, corn is the crop of conversation, as countries and business seek alternative energy sources. Deborah Wince-Smith from the Council of Competitiveness explained corn as a short-term solution, as opposed to other forms of cellulosic biofuels.

The energy balance of corn is poor because the energy exerted in processing ethanol is greater then the energy yield it produces. There is, however, enormous potential in sugar. And with Mexico being the largest producer of sugar in the region, North America has potential to further to diversify its energy sources.

"People live and create in communities," said Wince-Smith, "and these communities are connected throughout the world." The consolidated Americas have proved willing and able to effectively collaborate. For the most part, NAFTA has exemplified fruitful returns for all three countries. Where they go from here depends upon the coordinated effort to synchronize regulation and cross-border infrastructure in a system fueled by clean, sustainable energy.

  11:45 AM - 1:45 PM

Lunch Panel
Nobel Laureates in Economics Address "The Future of Capitalism"

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

Speakers:
Kenneth Arrow , Nobel Laureate, Economic Sciences, 1972; Professor of Economics and Operations Research (Emeritus), Stanford University
Gary Becker , Nobel Laureate, Economic Sciences, 1992; University Professor of Economics and Sociology, University of Chicago; FasterCures Board Member
Myron Scholes , Nobel Laureate, Economic Sciences, 1997; Chairman, Platinum Grove Asset Management; Frank E. Buck Professor of Finance Emeritus, Stanford University Graduate School of Business

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

Moderator Michael Milken's posed an expansive question for the luncheon plenary panel of Nobel Prize winners: What is the future of global capitalism? The result was a wide-ranging, big-picture discussion of the role capitalism has played in increasing society's welfare, and whether this development is likely to continue.

Although the panelists foresaw some potential difficulties on the horizon, the consensus was one of optimism and hope that the spread of capitalism can continue to improve the lives of people around the world.

Nobelist Gary Becker noted that the good news outweighs the bad when it comes to the future of global capitalism. His two areas of concern for global economic development were radical religious movements and government intervention in free markets. In fact, Becker said, he believes that capitalism has the ability to solve most global problems, provided that governments refrain from overregulation or meddling in areas better left to private industry.

Becker also refuted the common misconception that capitalism and democracy go hand in hand. There is no proof that a democratic society fosters economic growth, he argued, citing various examples of countries with democratic governments, but poor economic growth, and nations where authoritarian or military regimes had overseen strong economies. Instead, Becker argued that as a society undergoes economic growth, it tends to adopt a more open political system, often evolving toward democracy. He predicted that if China continues its rapid economic growth, it will move toward a more open political system in the not too distant future.

Kenneth Arrow was also optimistic about the future of capitalism. His major concern, he said, was that societies must learn to adapt to their aging populations. He spent some time discussing the ways in which the diverging demographic trends in the developed and developing world might evolve. Although this could lead to difficulties down the road, he said, he believes that societies should be able to overcome this problem.

Myron Scholes credited the remarkable rise in global living standards over the past 150 years to the rapid spread of technology and communications. These advances have enabled millions of people to raise their living standards. Scholes also discussed the continued development of China′s economy, noting that China has recently moved away from an export led economy toward growth driven by consumer demand, which he sees as a positive trend. He expressed some concern that China's economy may prove to be more volatile than India's -- chiefly because in China most economic decisions are driven from the top down by a small group of political elites. It is extremely difficult, he said, for a small group of decision makers to consistently make correct choices over a long period of time; thus, the odds of China making an economic policy "mistake" are greater than they are in India.

With private equity being such a popular media topic, Milken asked the Nobelists for their opinions of trends, particularly as they apply to governments. The panelists were unanimous in claiming that the entry of governments into the private equity arena was a negative development. Arrow questioned whether the presence of so many participants chasing excessive returns would cause these returns to revert to the mean. Meanwhile, both Becker and Scholes felt that governments generally do a poor job when they participate in private industry. Therefore, governments should not attempt to invest in private equity themselves. If they have surplus capital, they should return it to citizens or outsource its management to private sector professionals.

The session ended with Milken asking each panelists what he viewed as the most important role of capitalism in shaping society. Scholes responded that capitalism can help the poor when the cost of capital is driven lower by such systems as microfinance. He feels that lowering the cost of capital to the poor will have a greater effect on global development than top-down policies implemented by governments and aid organizations. Arrow suggested that governments can improve upon capitalism by intervening in certain situations where the free market does not establish optimal solutions. Finally, Becker stated that the main accomplishment of capitalism is to reduce global poverty and improve quality of life by facilitating economic growth.

The responses to this final question reinforced the panelists' overall optimism on the future of capitalism and global development. The consensus was that the spread of capitalism has contributed to widespread increases in human welfare, and that these advances should continue in the absence of excessive government interference.

  2:00 PM - 3:15 PM

Is U.S. Losing Its Standing as the World's Financial Superpower?

Speakers:
Arthur Culvahouse Jr. , Chair, O'Melveny & Myers LLP
Robert Grady , Managing Partner, Venture Capital Group, Carlyle Group
Michael Oxley , Vice Chairman, NASDAQ; Former U.S. Congressman, Chairman of the House Financial Services Committee
Leonard Schaeffer , Founding Chairman and CEO, WellPoint

Moderator:
Hal Scott , Nomura Professor and Director, Program on International Financial Systems, Harvard Law School; Director, Committee on Capital Markets Regulation

An impressive array of statistics can be amassed to show that the United States has declined from its financial preeminence over the past five to 10 years. Since 2000, the U.S. public market share of mobile IPOS has been reduced by 41 percent, while foreign shares of U.S IPOS have increased from zero percent to 17 percent. The relative value of U.S. markets is down, and foreign companies are increasingly going elsewhere to acquire capital.

The panelists agreed that the U.S. financial sector has weakened relative to the rest of the world. They also acknowledged that part of this decline is a result of factors external to the United States; the world has finally developed the capability to challenge America's long-held financial supremacy.

However, they also pointed to two significant internal factors that have exacerbated the decline. First, recent regulation has hampered the American investment climate. Second, litigation resulting from class-action lawsuits has dramatically increased the costs of doing business in the United States.

Much of the recent legislation regulating American finance has its roots in the corporate scandals of 2002. Former Congressman Michael Oxley described the political environment during the this time. "People in my district were grabbing me by my lapel," he said. "Their attitude toward CEOs was to give them a fair trial and hang them." This public outrage led the congressman to co-author the Sarbanes-Oxley Act, and Congress passed an expansive piece of legislation that put new standards in place for all public U.S. company boards, managers and accounting firms.

Although the corporate scandals of 2002 required some legislative response, a few panelists argued that certain provisions in the Sarbones-Oxley Act have produced unintended consequences, putting the U.S. financial sector at a competitive disadvantage and stifling innovation. Robert Grady of the Carlyle Group pointed out that the initial public offerings brokered for venture-backed firms like Intel, Cisco and eTrade would not be possible today because of the high transaction costs created by the legislation. He argued that these costs have prevented smaller companies from getting off the ground, holding back innovation and growth in the economy.

Other recent legislation and policies are additional "self-inflicted wounds," added Grady. He cited the decimalization of the NASDAQ, the Regulation Fair Disclosure ruling and the research settlement pursued by New York Attorney General Elliot Spitzer as particularly negative developments, even for the small investors whom the measures were designed to protect. Gray noted, "The little guy has less research, so he has less information, there is less market making, so there is less liquidity. How has the little guy been made better off? He is absolutely, observably worse off."

Panelists focused on the high costs firms bear in the United States as a result of litigation. Arthur Culvahouse of O'Melveny & Myers illustrated why foreign firms are more wary of doing business in the United States through the example of China Life, which was the last P.R.C.-owned firm to list on the NYSE and faced litigation shortly after it made its decision to list. "This illustrates the vicious cycle," he said. "Foreign companies list here, they get something wrong or a rule changes, their market cap goes down, and bang they're sued. I think that it's a cost of doing business that we increasingly can not afford now."

Discussing the cost of inevitable lawsuits, Leonard Schaefer of Wellpoint noted, "It's a very serious problem. If you are running a company of any size in this country you just wait to be sued and you try to settle. We used to have a dollar amount we tried to settle immediately rather than wasting any more time, and its incredibly expensive."

The panelists discussed several solutions for reducing the burden of unnecessary legislation. Congressman Oxley pointed out two steps in the right direction: the Securities Litigation Act and the new federal law that will force class-action lawsuits to be heard in federal court. Grady argued for legislation at all levels of government that chip away the incentives for inappropriate lawsuits. Moderator Hal Scott of Harvard University argued for giving shareholders the right to amend corporate charters so that they can decide how firms respond to lawsuits.

Responding to the prompt "Is the U.S. losing its standing as the world′s financial superpower?" the panelists issued a unanimous yes. Good public policy alone cannot prevent the world from closing the gap in finance. However, it can begin to reverse recent domestic developments that have put the United States at a strong comparative disadvantage.

  2:00 PM - 3:15 PM

A Conversation With Katherine Baicker of the White House Council of Economic Advisers

Speaker:
Katherine Baicker , Member, Council of Economic Advisers

Interviewer:
Rick Santelli, Bond Market Reporter, CNBC

U.S. health care and education, as well as globalization were the main topics discussed by Katherine Baicker of the White House Council of Economic Advisers. She opened her session addressing the way in which globalization is affecting the U.S. economy.

"The advantages of globalization," she said, "will come from liberalizing the trade of goods and services." Benefits would be complemented by gains in U.S. living standards of living; those gains from trade are spread out across the population, she explained, while negative effects tend to be more focused, such as the loss of jobs in a specific industry.

Thus, she noted, workforce training and retraining are key to successful competition in the global business arena. "Investing in human capital has a much higher return than ever before," she said, suggesting that, from an economic perspective, investment in human capital should receive the same tax incentives as investment in physical capital.

Education requires good governance and accountability, as well as metrics so that parents can make informed decisions about their children's K-12 education, according to Baicker. And workers who complete their K-12 education generally adapt and retrain more easily in the face of changing economic conditions.

Baicker also addressed the U.S. health-care system, which she acknowledged is hinged on policies drawn up years ago -- a situation that fails to recognize changes in the sector.

An increasing a percentage of U.S. GDP is being spent on health care, but the country is not really achieving proportional increments in health-care quality, she explained, adding that the United States spends twice as much in health care than many other countries but doesn′t get twice the quality of health care. Nor does Baicker see sufficient transparency. She argued that a lack of clarity between how much a medical service costs and its associated quality forces individuals to make the ill-informed decisions about their options. Many physicians don′t know the cost of the medical procedures because there aren't incentives for them to know this information.

The federal government (as the purchaser of half of the health care in the country) has the role of promoting electronic recordkeeping in order to avoid test duplication, which Baicker identified as a major source of the high costs of health care.

President Bush has called for reforming health care through reforming the tax code; existing legislation does not provide the incentives to make health-care spending more efficient. Preventative medicine, said Baicker, generally pays for itself in the long run. But without proper transparency for costs, patients again may not be making the best-informed choices. If the cost of preventative medicine is negative, she even went on to say, health-insurance companies could do better paying for preventative health care.

In response to an audience question, she also suggested that Americans have to face tough reality: health care will always be rationed because of budgetary concerns. By this, she meant that not every person can get access to every procedure. And in those areas that receive high percentages of federal health spending, people may not even have adequate access to health care. "It is an unpleasant reality that we must look at the costs and benefits of health-care spending," she added.

  2:00 PM - 3:15 PM

Doing Business in Russia

Speakers:
Patricia Cloherty , Chairman and CEO, Delta Private Equity Partners LLC; Manager, U.S. Russia Investment Fund and Delta Russia Fund LP
Clemens Grafe , Co-Head, Europe, the Middle East and Africa, UBS
Giedrius Pukas , Executive Director, Chief Investment Officer, Troika Capital Partners
Andrey Vavilov , Chairman, Institute for Financial Studies; former First Deputy Minister of Finance, Russia

Moderator:
Elena Barmakova , Founder and Chairman of the Board, Fontvieille Capital Inc.

The panel opened with unanimous agreement that investment possibilities in Russia remain good, even excellent, over the long run. But panelists also expressed concern about the short-term prospects.

The Russian economy continues to grow, with more direct investments in the country, said Andrey Vavilov of Institute for Financial Studies. "Liquidity management policy is the key to success," he said. The current Stabilization Fund, or Stab Fund (previously known as Debt Fund) totals more than $100 billion, and the main problem is how to spend this money.

The application of liquidity management policy is one way to succeed, he said. Key features of such a system would include concentration on the long-term target, flexible risk management and global diversification. Another important step would be to make the Stab Fund an independent agency that would no longer fall under management of the Central Bank.

Vavilov acknowledged that most of the changes that have taken place in Russia over the past seven years were caused by the world rise of oil prices. But he noted that the Russian market is still very volatile and that Russia may be ready to accept lower prices for its oil. Meanwhile, the Russian financial system has grown dramatically and is nearing international standards. Remaining issues include the lack of an appropriate regulatory system and bureaucracy that affects both foreign and domestic investors. He concluded that the Russian market is attractive, but that investors must exercise caution.

Giedrius Pukas of Troika Capital Partners noted that careful investors will do very well in Russia, and that now is, in fact, a good time to build business. Russia is too big to be ignored, he said. Currently, the country is in the post-crisis stage, with new business owners focused on building value. Over the past four to five years, he added, Russia has been preparing to accept foreign investments. Today its priority should be on stabilizing the banking and finance sector. Russians need financing, which is currently hard to obtain from the banks. He concluded with the optimistic view of enormous growth in the private equity market.

Patricia Cloherty with Delta Private Equity Partners also expressed optimism about the future of the Russian economy. She suggested that investment opportunities in private equity are endless and said that her company has invested $500 million in 54 Russian companies, with primary focus on the consumer-oriented and media companies. Cloherty did caution that corruption remains a problem in some areas.

Clemens Grafe with Europe, the Middle East and Africa, UBS, agreed with the other panelists that investment opportunities abound in Russia, though he stressed that international expectations are too high. Russia has a huge and growing consumer market, largely due to rising oil prices. But the oil and gas sector is the slowest-growing sector of the economy, where the construction, mortgage and finance sectors, among others, are enjoying surges.

"We are positive in terms of investing in Russian banks," said Grafe, though he noted that risks remain because of poorly defined rules and regulations. He described a similar scenario for the energy sector.

The panelists concluded as they began, agreeing that Russia is a land of great investment opportunity but underscoring the need for knowledge and caution.

  2:00 PM - 3:15 PM

The Wisdom of Crowds in Today's Digital World: We vs. Me

Speakers:
Chris Larsen , CEO and Co-Founder, Prosper Marketplace Inc.
Barry Libert , CEO, Shared Insights LLC
Christopher Meyer , Chief Executive, Monitor Networks, Monitor Group
Yossi Vardi , Chairman, International Technologies Ventures (Tel Aviv)

Moderator:
Yoram (Jerry) Wind , The Lauder Professor; Founding Editor, Wharton School Publishing; The Wharton School, University of Pennsylvania

Social networking communities like MySpace, YouTube and, most recently, Prosper.com are being called by many the "next big thing" in business. But are they really a new and different kind of business model? From a social perspective, do they really provide unique and expanded benefits to their members? And finally, are they good investment opportunities of precious capital?

Based on their personal experiences starting, running and analyzing community-based businesses, the panelists challenged widely held assumptions and shed new light on how to launch a successful social networking venture.

"We are already all members of many groups," including alumni associations, sports teams and religious organizations, said Barry Libert of Shared Insights. We just don't think about real-world communities the same way we do virtual communities. But community banks, for example, have existed for decades, matching borrowers (who take loans) with creditors (who make deposits).

All panelists seemed to agree that social networking communities are a natural evolution of business. A society fulfills its needs by means of economy, said Christopher Meyer of Monitor Networks, and digital social networking is just the next step in that evolution of economics. Chris Larsen of Prospect Marketplace suggested that this is essentially "getting back to the roots" of the message "no people, no value."

So what are some of the common features of this new business model? First of all, it is premised on an assumption that collaboration is good.

Yossi Vardi of International Technologies listed some of the forces that drive people to participate in communities. The most important, he said, is collaboration. "People are wired for collaboration," he explained, "and most of the time it works." Vardi even suggested a physiological reason for this: humans like collaboration because positive interaction releases dopamine into the bloodstream.

To facilitate collaboration, a community must also have openness and transparency to ensure trust between members and establish credibility of the community as a whole. Third, while self-expression is another key driver of communities, self-governance is critical to maintain the proper balance of individual versus group interests. Self-governance, said Libert, becomes the "invisible hand" that protects your interests.

And underlying all these common features is the concept or business around which members of the community want to "engage."

"Viral (marketing, when embedded ads are conveyed, for instance, at the bottom of an e-mail) is a very misused word," he said. Word of mouth and the engagement of people with common interests are every different from viral marketing; communities start by asking people questions that provoke emotion, and then develop from there.

Having said that, the most successful businesses start with innovative ideas. The technology is the tail end of the process. "Once you can reduce (an idea) to an algorithm," said Vardi, "the magic goes away." Long before that step, many creative questions must be asked and answered about how the community changes the way members work, what member capabilities are required and what value is created and derived by members.

Vardi pulled up a web site, www.20q.net, onscreen for the audience. The site offers several versions of the guessing game 20 questions and seems to have a high success rate in guessing animal/vegetable/mineral nouns (among other things, such as movie and television tiles) quickly though a methodical posing of questions. The audience chose the word "wheelbarrow" for its word and answered questions generated by the program. For instance, "Is it something you can buy?" "Is it square?" "Is it something used in the garden?" After just a dozen questions, it hit upon the correct answer.

People working in collaboration can achieve similarly results through collaboration -— more quickly and easily and correctly than people will by themselves. The computer game poses questions that must be answered methodically (and accurately); in real life, Vardi seemed to suggest, collaborative groups would naturally track questions asked (so they wouldn't have to answer those same questions posed in numerous variations); and they would tend to be sure that, along the sequence, they found the best answers.

There are many different kinds of potential business models. Craigslist.org, for instance, is a not-for-profit enterprise, seeking instead to create consumer utility. In reality, potential social-networking entrepreneurs can fund their investments and generate revenue through a number of way, ranging from subscriptions and sponsorships to advertising and user support. And these methods can be mixed together, depending on the goal and scope of the community and its members.

For those hoping to make their fortune from social networking communities, Vardi offered an interesting perspective on the prospects: The first hundred million users, he said, are the most difficult go get and hold on to -- but that's also the threshold for success these days.

When Vardi sold ICQ (which had pioneered instant messaging) to AOL for $400 million, he said, people asked him if he thought AOL was being rational. He responded by saying that if he had been rational, he would not have sold the business to AOL, and if AOL had been rational, it would not have bought the business. Neither the buyer nor the seller had any idea how successful ICQ might be, but ICQ did eventually add significant value to AOL's overall business. From that perspective, Vardi said, "We think revenue is a distraction."

  2:00 PM - 3:15 PM

How Are We Going to Pay for Building the World's Infrastructure?

Speakers:
Mic Dinsmore , Emeritus CEO, Port of Seattle
Richard Ford , Senior Counsel, K&L Gates
Dana Levenson , Managing Director and Head of North American Infrastructure, The Royal Bank of Scotland
Richard Little , Director, Keston Institute for Public Finance and Infrastructure Policy, University of Southern California
Jeffrey Schwartz , CEO, ProLogis

Moderator:
Louis Conforti , Managing Director, Head of Global Real Estate Securities, Stark Investments LP

Financing the development of the necessary infrastructure to keep the world's economy ticking in the 21st century is perhaps one of the most consequential endeavors we face. This panel, comprised of experts hailing from diverse backgrounds, commented on the challenges and opportunities that the public and private sectors will face.

Political barriers, which restrict the flow of capital to investments where they can earn the highest levels of risk-adjusted return, are the greatest impediments to infrastructure development in the United States, said Jeffrey Schwartz of ProLogis, and the net effect of the many political impediments is that there is underinvestment in U.S. infrastructure.

The need for infrastructure development is great, requiring both public and private funding. To meet the needs of repairing existing rail, roads and waterways, and developing new infrastructure, the United States will require tens of trillions of dollars in the coming decades. And while hundreds of billions of dollars are looking to be invested in infrastructure, there is a lack of political will to marry the supply and demand of funds, a phenomenon that Dana Levenson of the Royal Bank of Scotland described as "cutting our noses to spite ourselves."

Each day of delay in upgrading the U.S. infrastructure results in a marginal increase in the de facto taxation on U.S. GDP. Over the years, the United States has experienced a steady decrease in the percentage of GDP going into infrastructure, shrinking from 3 percent of GDP several decades ago to approximately 1 percent today. As U.S. infrastructure has decayed, the efficiency with which goods can be transported has decreased, resulting in higher prices for products and services.

As Richard Ford of K&L Gates stated, the fact that "we talk everything to death" in the United States is partly to blame for the deficiency in infrastructure investment. Richard Little of the University of Southern California acknowledged the tremendous amount of infrastructure that will need to built but defended the political debates that precede such investment, arguing that they are necessary to quell the negative externalities of infrastructure growth. He pointed to the problems of air quality surrounding the ports of Los Angeles and Long Beach in justifying public debate prior to infrastructure investment.

Aside from the years of political debate and environmental impact studies that often precede major infrastructure projects, infrastructure growth is often driven by "teachable moments," or major failures in existing facilities. Panelists likened this to the sudden focus on terrorism after September 11. Terrorism was a problem prior to 9/11, but it took a catastrophic event to motivate politicians to focus on a remedy.

A hypersensitivity to foreign ownership also imposes a barrier to inflows of overseas capital to financing domestic infrastructure investment. Mic Dinsmore, formerly of the Port of Seattle, captured the sentiments of the panel in describing the Dubai Ports World controversy as "one of the biggest fumbles I've seen in how to shape the political agenda." The irrational fears of U.S. legislators, such as Sen. Charles Schumer, over the proposed turnover of operations in six U.S. ports to Dubai Ports World has resulted in many foreign companies becoming hesitant to invest in U.S. infrastructure concerns.

Absent rigorous public debate and in the presence of focused political will, massive infrastructure projects can be completed in a relatively short amount of time. The panelists lauded the recently completed Yangshan deepwater port, near Shanghai, which will has a capacity of 25 million TEUs (20-foot equivalent units, a measure of container capacity). The port took just six years to complete -- about the same time it takes just to approve an infrastructure project in the United States.

While private financing is important in building infrastructure, government leadership is also crucial. Schwartz used the example of the Yangshan port to highlight this fact. He argued that while the private return on investment for the Yangshan port alone is low, the public return -- in the form of economic benefits accruing to Shanghai and the overall Zhejiang and Jiangsu region -- is enormous. Because private investors alone would never capture any of these public returns, it takes government foresight and political leadership develop the crucial infrastructure necessary for economic growth.

  2:00 PM - 3:15 PM

Early Childhood: A National Investment With Positive Returns

Speakers:
Eva Blum , Senior Vice President, PNC Bank, The PNC Financial Services Group Inc.
Dennis Winters , Chief, Office of Economic Advisors, Wisconsin Department of Workforce Development
Julie Meier Wright , President and CEO, San Diego Regional Economic Development Corporation

Moderator:
Robert Dugger , Managing Director, Tudor Investment Corporation

Global competition is intensifying, and if the United States is to succeed, the country's children must flourish. Evidence clearly demonstrates that investing in youth from the outset increases their chances of growing into healthy, productive adults.p> Moderator Robert Dugger of Tudor Investment led panelists Eva Blum of PNC Bank, Dennis Winters of the Wisconsin Department of Workforce Development and Julie Wright of the San Diego Regional Economic Development Corp. in a discussion of the way Americans invest in their children′s future, including early childhood health care and education.

With global competition intensifying daily and the national debt skyrocketing, the future of America's young people depends on a commitment to excellence in early education. Panelists agreed that a sound investment strategy and proper goal-setting will yield smarter, stronger and more confident minds and reveal hidden talents upon which the U.S. economy depends.

For this reason a consortium of business leaders, economists and philanthropists have drawn up a plan, Partnership for America's Economic Success, to help make the successful development and education of children a top economic national priority.

Astoundingly, more than 20 percent of U.S. workers are functionally illiterate and innumerate. High school dropout rates are increasing year by year, and the United States has the highest child poverty rate of the 20 developed countries belonging to the Organization for Economic Cooperation and Development (OECD).

The Partnership takes a three-pronged approach: Phase I is gathering evidence of the economic impact and laying the groundwork. Phase II is building coalitions and developing policy agenda; and Phase III is an advocacy stage.

"Skill begets skill," said Wright. "We must focus on the private sector ... import the talent and export the jobs." Furthermore, she added, "We must focus on growing the talent here, in our own country, rather than lose it to other countries."

Children must learn to first learn to read, then read to learn, added Winters. But it is a sad truth that U.S. support for early childhood education lags far behind that of other nations, she said, including that of most European nations.

"The vehicle for change is advocacy, grants and volunteering," explained Eva Blum. "We want our children to grow up being great. The first five years of life are the most critical for (mind development)."

She noted that economic development across communities is of vital importance. Children without proper education face poverty and may turn to crime, which is a negative burden on the community, socially and economically. Meanwhile, the result of a solid early education is an increase in savings, greater ownership, less special education and less crime.

Within the research agenda are five areas of focus. First, the microeconomic net gains from a solid early education; second, the macroeceonomic gains, including job creation, global competitiveness, fiscal sustainability and economic growth; third, sector analysis of jobs and GDP; and fourth, financial policy, the "how to pay for it all." Finally, the "communications part," or, the best ways to communicate findings and inform policy makers of the results so that change can become a reality.

By 2012, panelists explained, the partnership's goal is to have more than a million members in the coalition. By 2014, the goal is to work toward including in the federal budget the means to make the lifetime well-being of every child the highest priority of the government.

"To succeed, we must work together," said moderator Robert Dugger. So far, 12 donors have committed $3.11 million to help fund this economically vital project, so important for the future leaders, movers, and shakers of our country's economy.

  3:25 PM - 4:40 PM

A Conversation with Alvin Toffler

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

Interviewer:
Michael Intriligator, Professor of Economics, Political Science and Public Policy, University of California, Los Angeles; Senior Fellow, Milken Institute

When noted author and futurist Alvin Toffler sat down for a conversation with UCLA Professor and Senior Milken Fellow Michael Intriligator, their dialogue highlighted a theme of contrasts.

Toffler's work has always dealt with opposing forces, said Intriligator; his first book, Future Shock (1970) created the genre of future studies by suggesting that too rapid change creates general fatigue and confusion. And his most recent volume, Revolutionary Wealth (2006) discussed the paradoxical notion of the "prosumer," a blending of the marketplace roles of producer and consumer.

Toffler fleshed out the notion by suggesting that two "sectors" exist in the economy -- or what he referred to as two "wealth systems," as opposed to what we more conventionally refer to as "economies." He referred to several ways in which "activities we engage in outside the money economy have an impact on the money economy." For example, Linux, once a powerful competitor to the Windows operating system, was the result of a lone Finnish employee's efforts to improve a less than optimal way of working. The resulting system was added to the public domain and eventually had a profound influence on the "money economy," despite having been born entirely outside it.

Other examples include the shift from paid to personal labor, such as the increased replacement of paid tellers with self-service ATMs, as well as the proliferation of tasks completed by the "productive consumer," such as the homeowner who paints his own house. Toffler suggested that we need to pay more attention to the increasing impact of "prosumers" and encourage their activity. Not doing so, he suggested, would be the equivalent of a physician paying attention to a patient's right lung while entirely ignoring his left one.

Toffler reminded the audience that the advent -- and indeed perhaps the surpassing -- of the knowledge economy compels us to bring as much care and effort to the creation of social change as to technological or technical change. He suggested that despite all the accomplishments of science and technology, the social changes necessary to realize their benefits are still ahead of us and are the more difficult changes to achieve.

He also warned of what he variously called "institutional Katrinas," a "systemic crisis" and "the implosion to come." With regard to those phenomena, he explained that the difficulties of dealing with Hurricane Katrina point to institutional failures of a bureaucracy built two centuries ago, during the Industrial Revolution. Institutional failures of bureaucracy are also found in the battle with terrorism, which pits the U.S. intelligence system, built as a hierarchical and "pyramidal," against the flat, temporary and fast-moving terrorist organizations. Toffler also warned that change will be difficult to implement, noting that "the digits in the digital economy don′t fight you," but that organizational change is bound to elicit uproar and opposition.

In the "old" China, he added, new ideas were discouraged -- and anyone too vocal about them could get fired, which entailed the loss of other vital social privileges. Conversely, the economic system of the old communist regime provided no reward or benefit to the person who did come up with good ideas. In the United States, however, the opposite risk-reward relationship makes possible the proliferation of businesses and innovation, such as has occurred in places like Silicon Valley.

In response to a question from the audience, Toffler also pointed to a potentially more innovative system -- ironically also prevalent in Communist China, as well as Soviet Russia -- in which two separate chains of command successfully co-existed in the military, one reporting up to military leaders and a separate one reporting directly to the Communist party. Without endorsing that specific example, Toffler suggested that the United States needs to think creatively to anticipate and create similar "convergences" and chart a successful path to the future.

A final question from the audience on the rise of "irrational" movements ended the panel where it began by suggesting that too rapid change is creating an even greater need for the stability and "certainty" promised by certain religious, moral and social systems. Toffler used the occasion to suggest that the postmodern movement, introduced in France, is anti-scientific by nature and that our collective human task lies instead in promoting the advance of societies and of democracy.

  3:25 PM - 4:40 PM

The Resurgence of European Investment

Speakers:
Graham Clempson , European Managing Partner, MidOcean Partners UK
John Ong , Managing Director and Global Head of High Yield, BNP Paribas
François Pagès , CEO, Calyon Securities

Moderator:
John Gapper , Associate Editor and Chief Business Commentator, Financial Times

This session discussed recent trends in European financial markets, with a focus on two headline tensions: that between European and U.S. markets, and those within Europe itself.

Moderator John Gapper, a Financial Times editor, began the discussion by asking the panel whether recent U.S. attempts to regulate financial markets, namely the 2002 Sarbanes-Oxley act, had been successful or a "shot in the foot."

Graham Clempson of MidOcean Partners UK, saw an inverse relationship between trends in Europe and the United States. He saw numerous virtues in the European financial system not found in the United States, including: self-regulation; self-policing; light-touch regulation; proportional risk and reward of legal systems. All these policies have come together, along with maturation of markets, to cement Europe as place where innovation and dynamic businesses are rewarded, he said. Although many innovations originated from the United States, Europe has been able to refine these innovations to produce a better model than the US original.

Francois Pages of Calyon Securities, however, argued that Europe, unlike America, was not good at marketing its own success. There was tremendous scepticism in the 1990s about Europe's ability to create a single currency. Yet a decade later, the impact has been fantastic, he said, and Europe is now enjoying the fruits of its monetary innovation. Today the euro's share of global currency is at the same level as the deutschmark's in the 1980s, and it is attracting investment from various central banks.

Although the United States has traditionally produced the innovators of new financial instruments, Europe is now winning market share. For example, the mushrooming of the derivatives market demonstrates European innovation not seen in America. A large driver of this has been the growth of human talent in Europe.

Clempson agreed that there was a genuine two-way flow of innovation between Europe and the United States, illustrated by securitization and sell/lease back, two techniques developed in Europe. A large driver of this innovation is the fact that Europe came of age in a different environment, characterized by the boom of hedge funds and private equity.

John Ong of BNP Paribas said that the euro had accelerated an existing trend of convergence between Europe and the United States in terms of structure and public markets. The story of the next decade is going to be to what extent the United States will fight back. It faces a number of self-imposed limitations, such as the criminalization of inaccurate financial statements, closed borders and restrictions on work visas, all of which detract from its attractiveness and will force it to respond to lighter regulatory environment in Europe.

The strengthening of the pound relative to the dollar is being driven by two factors: the latent pool of European institutional capital that has liberated itself; and the increase in U.S. investors investing in the euro. These factors have created a liquidity wall.

European companies face ongoing difficulties in expanding the United States. The biggest challenge is the initial cost of setting up beach-head businesses, the panellists agreed. Once that is achieved, however, scaling up is easier. The move from the U.S. to Europe is seen as easier. Clean technology is one example of an industry where Europe leads the United States. But in order for Europe to make progress, America has to move beyond rhetoric and make these technologies economically viable. Some element of subsidy is required.

The panel switched to a discussion of intra-European tensions, generally between Eastern and Western Europe. Clempson argued that Europe was still very much one capital market. The euro, he said, has dramatically changed way investors look at the European high-yield market, for example.

But Pages felt that Europe was both a developed and emerging market. When Eastern Europe opened economically in the 1990s, Western Europe had to absorb the shock as well. Further, the deregulation of emerging markets has been very slow, compared to the deregulation in the United States. Meanwhile, the euro zone is still adding states, and there could potentially be a doubling of the number of people using the currency. Companies need to be sensitive about differences between Eastern and Western Europe, Pages noted, and cannot afford to generalise about how whole industries work.

There was a general consensus that London remained the financial capital of Europe. Ong argued that Europe's financial markets have been developed on City of London model. There were threats that if London stayed out of Europe, it would be disaster. Yet London's openness and lack of regulation was a great success. A quarter of a million French citizens now live in London, citizens who could have contributed to Parisian growth. This was seen largely as a protest against heavy European regulation.

That said, financial centres and centers of excellence are taking root developing in other parts of Europe. Switzerland is known to be hub of private banking, and France is considered to lead in innovative derivatives. Clempson pointed out that London faces a constant challenge to find the right balance between light-touch self-regulation and the power to hold poor performers accountable. The cost of living and taxes in London are high, and such factors as these, Pages said, account for the results of a recent survey in which 70 percent of respondents felt Europe did provide an attractive investment environment.

  3:25 PM - 4:40 PM

Investing in Sustainability: Is Green the New Gold?

Speakers:
Hewson Baltzell , President and Co-Founder, Innovest Strategic Value Advisors
David Blood , Managing Partner, Generation Investment Management U.S. LLP
Zachary Karabell , Executive Vice President, Chief Economist and Portfolio Manager, Fred Alger Management and its Spectra Funds
Richard Kauffman , CEO and President, Good Energies
Diana Propper de Callejon9010937305 , General Partner, Expansion Capital Partners LLC

Moderator:
Winston Hickox , Chair, California Market Advisory Committee

The panel represented a cross section of businesses that included venture capital, entrepreneurship and hedge fund firms, as well as a state-owned pension fund, CalPERS.

Winston Hickox of CalPERS, who is also the chair of California Market Advisory Committee, laid the framework for discussion by getting to the core investor fiduciary responsibility, which is to understand, manage and mitigate risk in a sustainable manner. CalPERS and CalSTRS have recognized the opportunity, as well as the need, to invest in the clean technology and sustainable sectors, he said, and have committed more than $1 billion to venture capital and publicly traded equities. These investments are influenced by two externalities: climate change and increasing volatility of energy related commodities.

Hickox also highlighted the awareness in sustainability by pointing to recent headlines from leading magazines such as The Economist, BusinessWeek, and The New York Times.

There was a general consensus among the panel members on the need for sustainable investment. It's also the right thing to do, they agreed. However, each panel member had different opinions as to whether the message has reached mainstream investors.

According to Hewson Baltzell of Innovest Strategic Value Advisors, an international advisory firm, "looking at environmentally sustainable companies is still a niche business." Few major players are actively looking at sustainable investments. The JPMorgan Environmental Index (JENI-C Beta), developed in collaboration between JPMorgan and Innovest, is the first high-grade corporate bond index designed to better educate investors on the environmental and global warming impacts of their investments.

David Blood, who launched his own investment firm, Generation Investment Management, with former Vice President Al Gore, stressed the need for the creation of a common language among investors to integrate sustainability into the investment process. He highlighted the close link between sustainability and good business strategy, and noted that a strategy that integrates sustainability can lead to long-term value creation.

Zachary Karabell, of Fred Alger Management and its Spectra Funds, started off by saying, "Doing well and doing good need not be a trade-off." As the developed world becomes more affluent, sustainable investing will become more mainstream. His fund invests in innovative companies that adopt green practices. Karabell also cited Wal-Mart as an interesting example. Whether the company's work on sustainability is an effort to divert bad press from other unpopular issues or a genuine effort to go green, it has proved a success. And sustainable investing in the long run will lead to convergence of cost structures and better margins.

Rich Kauffman of Good Energies, a company that primarily invests in the solar sector, puts forth a set of questions that may have help determine the sustainability of sustainable investments: Is sustainable investing good for the environment and bad for investors? Is the Internet bust a precedent? Is sustainability a specialized class of investing? What about valuation of intangibles? What about the short side of the market?

The second question -- Is the Internet bust a precedent? -— referred to the dotcom bubble burst in early 2000. Kauffman predicted the possibility of thin-film solar to be the next "bust candidate" from the clean-tech sector. With money pouring into many different technologies, there will be clear winners and losers, he added.

Kauffman also brought up the need to categorize sustainability as a separate asset class will bring increased attention and awareness, and generate additional flow of funds. Valuation is another area where there is a lot to be learned by the investors and rating agencies.

From the venture capitalist's perspective, Diana Propper de Callejon of Expansion Capital noted that the financial returns objective should be closely aligned with environmental and social objectives. The latter are already part of risk-mitigation practices of most companies. Now these will have to be tied specifically to financial objectives. She made a case for venture capitalists in the sector because they are the ones who have a track record of fostering innovations, and large incumbent companies look "outside their walls" for innovations from small companies.

Propper de Callejon asked some key questions regarding the long-term success of many green initiatives: How do we produce more of the same in a sustainable manner? Are there limits to growth in sustainability investing? Are these sustainable solutions scalable, given our limited natural resources? What are the long term effects of striving for sustainability?

The panel members acknowledged the challenges involved in getting these questions answered. In the meantime, any effort to decrease our carbon footprint will help mitigate the harmful environmental effects. One needs to understand the intrinsic value of the environment and the ecosystem in order to address the long-term problems and arrive at sustainable solutions.

  3:25 PM - 4:40 PM

The Family Office: Tackling the Challenges of Conducting Business in a Global Economy

Speakers:
Linda Bourn , Managing Director and Family Office Practice Leader, Private Client Services, Marsh Inc.
Katie Kalvoda , Founder and Managing Director, Newport Wealth Management
Douglas Kane , President, Risk Control Strategies
Pierre Rolin , Founder, Chairman and CEO, Strategic Real Estate Advisors Ltd.

Moderator:
Timothy Lappen , Founder and Chairman, Family Office Group, Jeffer, Mangels, Butler & Marmaro LLP

There is always a lot of discussion about the way high-net-worth families should diversify their investment portfolios. However, little attention is put into how they should tackle real-world issues as they live and conduct business in a global economy.

"A family office is seen as a concierge solving all kinds of issues, from travel needs to private-equity decisions for families with more than $200 million in investable assets," noted moderator Timothy Lappen of the Family Office Group. Outsourced or in-house, a family office needs to address and mitigate all risks that the family members face.

"The most important factor for a family is wealth preservation, more than their asset growth," said Pierre Rolin Strategic Real Estate Advisors. However, the biggest risk in reality is continuity. "There needs to be a continuity plan," noted Linda Bourn of Marsh Inc., "in case anything happens to the family members." The biggest component of continuity is security. Douglas Kane noted that "just being out there, family members have an inherent risk." The family office needs to have up-to-standard security protocols incorporating changes in lifestyle that can avoid family disasters, such as kidnappings and/or robberies. People management (i.e., hiring and firing of service people, investment professionals and others) and a clear understanding of the family's wealth (i.e., the management of their art collection) are crucial factors in mitigating these risks, according to Bourn.

Insurance is not the ultimate solution for global families, but proactive management is, said Kane. "Education is required on the front end. Kidnappings and robberies are not a random act." For example, families put a lot of effort on security when flying private to another country, but they never consider who takes care of their plane when they are on the ground or to keep their flight plans confidential, putting them in a high-risk situation. "If you give the information out, there is no point of a security system," warned Kane, referring to the importance of managing the people and staff around the family. Background checks are the best way to begin.

Computers are also a big threat for high-net-worth companies. Rolin recommended that individuals increase face-to-face meetings, adding that "the less you write, the better." Code names for family members and family plans should also be the norm.

Another risk is "headline risk," which can come through either intentional or unintentional acts. "Confidentiality with the people that surround the family is crucial to avoid headline risk," said Katie Kalvoda of Newport Wealth Management. The liability is enormous, she added, saying that "everybody views you as a very deep pocket." She also said, "The Golden Rule of the family office should always be: never embarrass the company"

However, as people invest money globally, due diligence in other countries becomes complicated. Rolin suggested maintaining association with only blue-chip partners in foreign markets. "You can't create the same due diligence process in Shanghai or Vietnam." The family office needs to understand that in other markets you are no longer with "country club family and friends."

Families going abroad require a partner with a track record in the territory and with the ability to keep the same investment pace. "Partner up with someone who would go bankrupt if your project doesn′t work," suggested Kalvoda. "Start small -- don't go in big-bang," added Kane. Hiring a local staff and/or people with in-country experience is always a good idea.

Transparency also plays an important role in investment. As a family office, "you should always compare your protocols with other investment institutions and maintain a daily communication with your portfolio managers," said Kalvoda. In this area, more than in any other, background checks should be the norm, up to the fifth level of contact.

The panelists agreed on the important role the family office plays in defending the family's name and mitigating the real-world daily issues that all family members face. An infrastructure needs to be developed for a net-worth family to live in today's world, not only in their native country, but around the World, where they travel and do business.

  3:25 PM - 4:40 PM

Good Capitalism, Bad Capitalism

Speakers:
Michael Darby , Professor of Policy, Director of the John M. Olin Center for Policy, Anderson School of Management, University of California, Los Angeles
Michael Klein , Vice President, Financial and Private Sector Development, World Bank Group/International Finance Corporation (IFC)
Robert Litan , Vice President, Research and Policy, Ewing Marion Kauffman Foundation
Andrei Shleifer , Professor of Economics, Harvard University

Moderator:
Peter Passell , Editor, Milken Institute Review

After the fall of Berlin wall, noted moderator Peter Passell of the Milken Institute, it appeared to be an undisputed fact that capitalism had achieved worldwide triumph over other political ideologies, and socialism in particular. The success was monumental; some analysts called it the "end of history."

However, as one observes political development in the variety of capitalistic economies around the globe -- Russia, India, Japan and even some in Europe -- one cannot help but notice that not all proclaimed capitalistic nations look and behave the in same way.

In the words of Robert Litan, co-author of Good Capitalism, Bad Capitalism and a vice president at the Ewing Marion Kauffman Foundation, "Capitalism is not monolithic, but it is essential for growth." The book looks at economic growth and how it is affected by four different forms of capitalist regimes: oligarchic, state-guided; big-firm/bureaucratic; and entrepreneurial.

In the oligarchic form of capitalism, the top priority is not national growth, but the augmentation of the wealth and power of the elites. This type of capitalism is evident in Russia and most Latin American and African countries, said Litan.

State-guided capitalism has taken form in such countries as India and those in the Southeast Asia, and can be effective for jump-starting less developed countries; the state-government directs and regulates the economy, picking and choosing areas worth investment and development. The drawback, however, is that the government is the sole decision-maker for such decisions as where to target investment and if those mistakes prove incorrect, the results can be disastrous.

Countries such as Japan and Europe display what is referred to as big-firm/bureaucratic capitalism, Litan explained. Large and stabilized firms and businesses dictate and essentially control the direction of the economy. While this is effective for refining and creating incremental change, it does not allow for the radical innovation that produces significant growth.

However, entrepreneurial capitalism allows for radical innovation that drives growth and ultimately promotes the well-being of society and health of nations. The benefits of this model are seen in such inventions as the air-conditioner, the cell phone and the Internet. The United States is considered to be the model example of this type of capitalism.

Litan acknowledged that these forms of capitalism are not necessarily mutually exclusive. "Entrepreneurial capitalism is largely dependant upon big-firm capitalism for the initial funding and support of projects," he noted. That said, his book encourages the United States to not become complacent but continue to identify ways to stay ahead of the game and use the model to solve greater social problems involving education, health care and pensions.

Panelist Michael Darby, a policy professor at UCLA, said he thought it was "a great book," but he questioned the degree to which cultural differences affected the growth and concept of capitalistic ideals. He also cautioned against characterizing the United States as a dominant entrepreneurial nation, saying that only an estimated 10 percent of industries are growing and the rest of big firms are simply "tagging along."

Andrei Shleifer, a professor of economics at Harvard, cited examples in which each classification model mentioned in Good Capitalism, Bad Capitalism produced growth. "Look around the world," he said, "and you′ll find examples of every kind of capitalism demonstrating growth, some faster than the U.S." He mentioned South Korea and Chile as operating under an oligarch model and Singapore and China operating under the state-guided model. He noted that the book was not incorrect in its assessment that the U.S. economy was strong. "It is apparent that innovation is a part of it (growth), but it is a huge step to say entrepreneurial capitalism is right as the dominant model" and that most states revert back to big-firm and/or state-guided types.

Litan in turn stated that while it is possible to achieve growth under these models, it is the inclusion of "entrepreneurial capitalism that pushes a country over the frontier into an arena of reaching radical innovation, which is the road to the future." He also argued that the deep pockets that exist in Israel and India explain why there is so much potential and why investors are taking a strong interest.

The panel then opened up for audience questions, some of which concerned the conditions and catalysts by which entrepreneurial capitalism flourishes.

Litan stated four catalysts and essential conditions for entrepreneurial capitalism to flourish: (1) low barriers for entering the market; (2) incentives for people to grow their business, such as low taxes; (3) disincentives for rent-seekers and instead a push to keep the market competitive; and (4) luck, as it pertains to timing and consumer demand.

Shleifer disagreed and stated he believed the influx in entrepreneurialism to be a result of "reduced trade barriers and tax, increase in capital flows, reduction in regulation and privatization."

With respect to an audience question about intellectual property, Michael Klein pf the World Bank Group/International Finance Corporation (IFC), argued that this was one of the key topics of the future, "Since information is more readily available, it is harder to protect," he said and noted that a whole new set of issues pertaining to intellectual property and biotechnology are currently arising. He also discussed how issues such as health care and pensions will dominate the future and stated that these cannot be left to the markets.

While the panelists essentially agreed that there were differing shades of capitalism, there was disagreement between the audience and panel as to how effective entrepreneurial capitalism will be in solving the problems of our future and how sustainable it will be as a long-term model.

Tuesday, April 24, 2007

  6:30 AM - 7:45 AM

National Association of State Treasurers Breakfast
By invitation only

This session is by "invitation only" and is limited to invited guests. If you are interested in attending, please send an e-mail request to jmeehan@milkeninstitute.org.

  6:30 AM - 7:45 AM

Activist Investing Workshop

Moderator:
Richard Elden , Principal, Lakeview Investment Manager LLC

  7:55 AM - 9:15 AM

U.S. Overview: Not Too Hot, Not Too Cold?

Speakers:
Brian Fabbri , Chief U.S. Economist for North America, BNP Paribas
Angelo Mozilo , Chairman and CEO, Countrywide Financial Corporation
Peter Orszag , Director, Congressional Budget Office
Andrew Rosenfield , Managing Partner, Guggenheim Partners LLC; Founder, President and CEO, Leaf Group LLC

Moderator:
Steve Forbes , President and CEO, Forbes Inc.; Editor-in-Chief, Forbes

"Our long-term fiscal picture is not pretty." This somber view of the U.S. economy, uttered by Director Peter Orszag of the Congressional Budget Office, was not shared universally by other panelists, who presented contrasting views and perspectives. In the course of the session, they did, however, generally agree that the U.S. economy was steady, and would not be extremely vibrant or bleak in the near term. In fact, "not too hot, not too cold" appropriately captured what Americans can expect in the coming quarters, years, and decades.

The panelists also included a CEO of the largest U.S. mortgage company (Angelo Mozilo); an industrial economist/managing partner of a notable financial services firm (Andrew Rosenfield); a economist/banker (Brian Fabbri); a moderator Steve Forbes. Their unique viewpoints, such as how they framed the economy in terms micro versus macro factors or a long-term versus short-term considerations, produced varied accounts of what has occurred and what one can expect.

"The U.S. economy is entering into a serious correction period," warned Fabbri, stating that the economy would not return to the levels of GDP productivity it had experienced in previous years. Highlighting such harsh realities as the slumping of domestic assets prices, rising housing delinquencies, stricter regulations for lending, reduced investment in real estate, the decline in overall consumption, slowed consumer spending, a decline in housing starts and the fact that 20 percent of disposable personal income is going to debt services, Fabbri painted a grim outlook of slowed growth and economic hardship that Americans can expect in the near term.

"I hope it's true," Mozilo exclaimed after listening to Fabbri, "because that would cause the Federal Reserve to lower interest rates, which is always good for us!" This half-joking, half-serious remark underscored the fact that the health of the economy truly is in the eye of the beholder. Mozilo advised the audience that the housing market is not as bad as it may seem, projecting that only about 5 percent of domestic homeowners would enter into foreclosure. And although housing values continue to slip and people continue to leverage themselves, Mozilo noted that 81 percent of homeowners continue to make their payments on time.

"The bigger the gap that exists between people who own homes and those that don't and can't, the bigger the social problems will be," stated Mozilo. The fact that so many Americans now own their own homes is indicative of the strength of the U.S. economy, he maintained but added that Congress has tightened restrictions and regulations that have "changed the rules in the middle of the game" for homeowners and may have drastic effects in the long term.

Speaking on behalf of the Congressional Budget Office and putting Mozilo's comments into a macroeconomic perspective, Orszag asserted that "the biggest thing we need to fear from the housing sector is that it may spread fear itself," and that the housing sector will not affect the greater economy significantly unless people lose consumer confidence. Orszag agreed with Fabbri that GDP growth likely will slow to around 2 percent but predicted that the country will avoid a complete recession. He attributed this economic slowdown to rising health-care costs.

"The biggest long-term fiscal problem we face," he said, "is health care, not aging." Currently the United States spends 4.5 percent of GDP on Medicare and Medicaid costs. Unless these costs are reined in, by 2020, he warned, that number will rise to 20 percent, which would be larger than the entire current federal budget. Orszag was optimistic that the country can achieve this, assuring the audience that "there is a variety of evidence suggesting we can take costs out of the (health-care) equation without impairing the health of Americans."

Presenting a brighter view of the fiscal outlook, Rosenfield argued that the United States currently maintains a staggering $678 trillion in capital stock, $600 trillion of which is human capital that has yet to be fulfilled. He added that growth is driven by scalability of human capital, an asset that the nation is rich in. "Our investment in higher education dwarfs other countries," he said, and he urged the panelists and audience not to view the economy in terms of the next few quarters, but rather in the next few years and decades. Looking over 20 or 30, he predicted, GDP growth will be above 3 percent, driven by technology and human knowledge. "Knowledge," he added, "is a non-rival, non-excludable good. It spreads widely."

However, moderator Forbes wondered whether 2 percent to 3 percent growth was even adequate, considering that China's economy is growing at 10 percent to 11 percent annual, and with India not far behind. Fabbri shared his concern, adding that the U.S. trade deficit has reached a staggering 6 percent and warning that "we slow down and they keep growing, and when that happens, there will be a shift in asset investment away from U.S." Orszag concurred, saying, "It is very unusual for the world's largest economic power to be in this position."

Despite all these weaknesses, Forbes reassured the audience of U.S. economic strength, speaking specifically to the impressive $28 trillion of net assets that exist on the nationwide, aggregated personal balance sheets.

With impressive numbers like these, Forbes asked, "Why is the mood in the U.S. so somber and sour?" Panelist answers included the Iraq war, income inequality, lack of social safety nets and health care and the looming presence of the Asian tigers.

So how hot or cold is the U.S. economy? As this panel illustrated, it depends who you ask. Regardless of the actual temperature of the U.S. economy, Forbes left the audience with a calming piece of advice: "Eventually we get through these things and we are stronger for it."

  9:25 AM - 10:40 AM

Financial Convergence: Do the Classifications of Investment Styles Still Make Sense?

Speakers:
Leon Black , Founding Partner, Apollo Advisors LP
Gregory Fuss , Senior Vice President, The Capital Group Companies
Michael Keough , Principal, Stark Investments
Andrew Rosenfield , Managing Partner, Guggenheim Partners LLC; Founder, President and CEO, Leaf Group LLC

Moderator:
Robert Lessin , Vice Chairman, Jefferies & Company

According to moderator Robert Lessin of Jefferies & Company, the investment environment used to be simple. If it was a leveraged deal with capital, you sent it to a private equity firm like Apollo. If you needed instant liquidity, you sent it to an investment management firm like Capital. If you required downside protection, you sent it to a diversified financial services firm like Guggenheim.

These divisions are becoming less distinct, he said, and some feel that the business is becoming commoditized. Customer preferences have changed, and firms are reacting accordingly. This panel explored if, how and why these changes are taking place.

Gregory Fuss of The Capital Group Companies explained that consumer stock preferences have changed. He argued that investors wanted stability after the 2000-2002 crash and shifted to more conservative management. Clients now want increased liquidity, both to pay bills and to ensure a quick exit strategy. In essence, according to Fuss, people now want a stability that they did not previously prioritize.

Andrew Rosenfield of Guggenheim Partners agreed, noting that "the provision of liquidity is a great source of return" and that "people really treat losses different than gains. They treat a dollar of loss as twice as bad as a dollar of gain." This means you need to use assets imaginatively to get higher returns that are less loss-prone. Returns are then more "psychologically appropriate" for current clients.

Perhaps partly as a reaction to these changing preferences, Lessin said, some hedge funds appear to be getting more into the private equity business with longer lockup periods. Michael Keough of Stark Investments agreed that this might be the case, but only with a global mindset. He added that "you should be indifferent to the business model because it is in the investor's best interest to think that way."

Rosenfield argued that firms should stick to their core competencies and that the convergence question should be looked at as a talent problem. "You don′t get paid for creating diversification when your customers can create it themselves," he said. This movement toward conversion is really a movement driven by human capital and expertise. He concluded, "There′s a lot of money searching for a very small amount of talent."

Leon Black of Apollo Advisors added that private equity covers a lot of different areas today and has been expanding to an array of products for the past five years. "From the get-go, (Apollo's) view always was to look at a balance sheet and decide where was the best risk/reward" he said. Sometimes it was controlling the company, sometimes it was higher up in the capital structure. "Private equity today, and what we try to do, is to have this integrated platform -- we have no Chinese walls in our private equity business." But he added, Apollo tends to stick to industries with which it feels comfortable. "We do it around industry verticals where we think we have real expertise."

Fuss added a different perspective. Capital Group is not in the hedge fund business and does not want to be. Fuss said that this is for three primary reasons: First, the firm couldn′t figure out the conflicts of interest. Second, it is a fundamentally different skill set to short stocks. Capital has a distinct culture and would have had to look outside the firm for the relevant talent. Third and possibly most important, Capital has typically been voted the best buy-side firm by the executives of the companies they follow. They want to preserve this relationship, and the dynamic introduced by possibly shorting stocks could harm this.

Another industry trend that is often talked about in the media is the possibility of many private equity firms going public. Fuss answered the question "why Capital Group will never go public" by saying that the firm prefers to have the freedom to do what it thinks is right, and to "spend their own money doing it." Sometimes, this means doing things that are very out of the mainstream at the time, and thus could be against the market.

According to Black, whose Apollo Associates is often rumored to be going public, "The real issue is looking at it as you look at everything. Is there really a strategic reason to do it? There are real positives, and there are some real negatives." He added that "certainly, having an outlet to eventually monetize for the founders and senior partners is a plus." Going public gives you a currency that can be helpful for industry investment and attracting top talent to your firm. On the other hand, the minuses are also compelling. Being public, you are under the microscope of compliance, you are in the fishbowl, and you have "shareholders coming out of the woodwork that can sue you."

Black thinks that "right now a lot of firms are certainly considering it (going public) seriously, and one question is, 'Is this a window, or is it something that will become the norm over time?' I go back and forth. He added that "once you really have diversified streams of cash flow that are stable and constant and of size, they ought to be able to be monetized," and this is a trend that will continue. On the other hand, if liquidity dries up, maybe this will prove to be a window.

Other topics covered included carbon footprints and "charitable footprints." Most panelists felt that carbon emissions and offsets will become an issue in valuing companies, but that there is not yet much activity on this front.

Charitable footprints generally take the form of individual asset managers investing in social ventures or making charitable contributions form their earnings. The question of whether contributions on a private scale make sense or whether investment firms should begin to cultivate a charitable presence as part of their branding was debated. Fuss said that Capital Group's partners are quite active on this front "behind the scenes," but that the company is unlikely to ever be public about these efforts (especially considering the firm′s preference for privacy).

Black said he encourages his partners to get involved and contribute to things they are interested in, and follows this advice himself. But, he argued, charitable giving is most appropriately done by the individual asset managers and the LPs, rather than by aggregating some portion of the firms fees or returns and donating that. Rosenfield agreed but added that there is an important element of leadership in charitable giving that managing partners should demonstrate.

The panel concluded with an issue of concern for all managers of investment firms. "The most dangerous words I've ever heard in the financial community," said Lessin, "are, 'It's different this time.' Is it different this time?"

Black suggested that "every time is different, but clearly we go through cycles. The question is, how long will these cycles be?" Returns will come down eventually, but right now, he said, "Interest rates are pretty comfortable, inflation seems to be pretty much under control, employment numbers are great, the economy is still chugging along. There is a lot of debt, but as percentage of GDP, it is not alarming. There is an astounding amount of global liquidity that is real." If something causes this cycle to downturn, Black said, it would be due to an unpredictable geopolitical event. He concluded that "it doesn′t feel to me that it's about to fall off a cliff, subject to the geopolitical risks."

Keough added that "as a global multi-asset manager, I agree with Leon, it looks great." He said that "the global liquidity is forcing asset managers to think about their business differently" and that "there is distress out there -- it's just maybe not as widespread as it was in 2003."

Rosenfield pointed out that the disparity between wealthy and poorer nations is 37-1 and can't persist. He predicted poorer countries will see much more rapid growth. This means that, in some sense, the United States will not do as well, in terms of growth rates, as some other countries. But, according to Rosenfield, this is a good thing.

  9:25 am - 10:40 am

Energy Infrastructure of the 21st Century

Speakers:
Theodore Craver Jr. , President and CEO, Edison Mission Group
Brent de Jong , CEO, Ashmore Energy International
Michael Garland , Head of North America Infrastructure and Project Finance Group, Babcock & Brown
Kelcy Warren , Co-CEO and Co-Chairman of the Board of Directors, Energy Transfer Partners LP
Joseph Welch , President and CEO, ITC Holdings Corp.

Moderator:
Phillip Pace , Managing Director, Investment Banking Division, and Co-Chairman, Global Energy Group, Credit Suisse

How are energy companies responding to the growing need for new and updated energy infrastructure to deal with growing worldwide demand and aged and obsolete systems? What are the challenges from competing demand for raw commodities, and what problems does that pose from a cost, inflation and capital-needs standpoint? The panel will focus on the trajectory of U.S. and global energy supply and use, its dynamic interaction with a set of driving forces -- such as technological advances, energy and climate policy and private investment -- and the effect of these factors on the future of energy infrastructure.

  9:25 AM - 10:40 AM

The Changing Face of Arab Business: The Growth of Small and Medium-Sized Firms

Speakers:
Kenneth Morse , Senior Lecturer and Managing Director, MIT Entrepreneurship Center
Shamsa Noor Ali Rashid , CEO, Forsa
Zachary Venegas , Partner and Co-Founder, Scimitar Global Ventures

Moderator:
Robert Bush Jr. , Partner, Dar Al Emaraat

Although the business environment in much of the Middle East is dominated by large oil companies, the revenue produced by the high oil prices of the past five years has created a boom in the broader markets of these countries. As the region grows wealthier and foreign investors turn to these markets in hopes of capturing a share of this income, entrepreneurship has flourished.

Kenneth Morse of the MIT Entrepreneurship Center began the session by describing a situation within much of the Middle East where the public sector has reached the limit in its ability to provide meaningful employment and where entrepreneurship can provide hope for expanded employment through growth in the private sector. He asserted that entrepreneurship can, indeed, be taught. In fact, many of his students are from the Middle East, he said, and providing them the knowledge to succeed in those markets is an essential part of their education.

When describing the attributes he looks for in investing in local Middle Eastern entrepreneurs, Morse pointed to diligence, passion, team-building ability and global ambition. Also, in an attempt to utilize of an under-used asset, he has focused on investing in entrepreneurial women in the Middle East whose unemployment rate stands at what he considers to be a conservative estimate of 25 percent.

Shamsa Noor Ali Rashid of Forsa, a Dubai-based company that focuses on providing investment vehicles to female investors, serves as an example of this entrepreneurial spirit. By focusing their efforts on the under-served sector of female investors in Dubai who, according to Sharia law, inherit one-eighth of their fathers' estates but are excluded from the all-male social and business networks that dominate the region, Forsa has not only grown successfully but has also served as an entrepreneurial model and inspiration to other female entrepreneurs. While Morse focuses his efforts on funding startups, Shamsa Noor Ali Rashid focuses on funding business owners who have been successful at the local level and hope to expand internationally.

The panel emphasized that while risks may be higher in volatile portions of the Middle East, such as northern Iraq, where Zachary Pessin is currently doing the bulk of Scimitar Group's investing, the rewards are commensurate with those risks and what would seem to be excessively high risk to a Westerner may present a lower risk to a local entrepreneur. Pessin also pointed out that because of the limited funds currently directed toward more volatile regions, investors can be selective in who they deal with, focusing only on the best and brightest.

There was general agreement within the panel that much of the Middle East still possessed substantial barriers to entry, as well as business practices that inhibit entrepreneurialism. Moderator Robert Bush Jr. noted that the costs to starting a business in the Middle East are exponentially higher than the world average and recommended pointing this out to regional leaders in order to initiate change.

The greatest obstacle to entrepreneurial success, said Morse, was the cultural acceptance of large companies buying from small ones and then refusing to pay their bills. Shamsa Noor Ali Rashid explained this phenomenon as an attribute of the long-accepted barter system, which gives leverage to the debtor in extracting future concessions as a condition of payment. She felt that while this practice needed to be eliminated, the current GDP growth of 9 percent to 16 percent in the region justified operating in such an environment. Many of the larger companies feel that they are doing smaller firms a favor just by doing business with them, added Pessin, and that they have no real obligation to pay. Morse felt that large businesses purchasing from smaller companies, then paying their bills, was essential to the continued success of the private sector.

Robert Bush Jr. and Zachary Pessin agreed that because of the diaspora nature of the markets and the problems related to small firms receiving payment from larger firms, the natural evolution of the market should be toward a merchant banking system. This would offer investors inside knowledge of their target markets and give small firms more powerful representation to deal with larger firms on their behalf. It would also eliminate the ambiguity many western investors experience when dealing with a culture where obtaining high-level meetings is not an indicator of success and where they will never be told "no" to a proposal to their faces.

When the panel was asked which sectors they felt younger entrepreneurs are gravitating toward, Ali Rashid pointed to an explosive demand in services as westerners move into the region and search out western conveniences, while Pessin highlighted the demand for both physical and information security. He noted a trend of replacing former western military personnel who serve as security guards with Middle Eastern prior military personnel.

The final question posed to the panel was how to exit the market with your profits. While it was felt that taking companies public offered some opportunity to realize profits, it was also generally felt that Middle Eastern stock markets have not yet matured to the necessary levels of sophistication, transparency or volume to make this a dependable option. The panel concluded that scalability with competition was the most viable solution; one could either sell out to competitors or expand by buying them out.

While Middle Eastern entrepreneurship still faces substantial barriers to launching and financial success, it is the knowledge and ability to overcome those barriers, as Pessin said, that offers the potential for high returns.

  9:25 AM - 10:40 AM

Global Risk in an Interdependent World

Speakers:
Richard Haass , President, Council on Foreign Relations
George Hoguet , Global Investment Strategist, Senior Portfolio Manager, State Street Global Advisors
Kenneth Knight Jr. , National Intelligence Officer for Warning, National Intelligence Council
Jami Miscik , Global Head of Sovereign Risk, Lehman Brothers

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

Much attention is given to low-frequency risk from natural disasters, financial crises, major terrorist attacks and so on that have large impacts. Moderator Joel Kurtzman of Knowledge Universe and the Milken Institute argued that global investors should be "more concerned about high-frequency, low-impact risks" that systemically affect the governments and economies of many emerging markets. These kinds of risk come from corruption, lack of transparency and poorly defined property rights. A better understanding of the systemic risks in an increasingly interdependent world is important, Kurtzman said, because "many high-risk countries have huge opportunity."

According to Jami Miscik of Lehman Brothers, "in the financial world, people are risk-takers." But they need to understand how geopolitical trends and issues can affect markets and financial flows so that "risks are taken smartly." George Hoguet of State Street Global Advisors noted that many investors do account for risk in asset prices, but that there does exist a great deal of uncertainty and ignorance.

The panelists discussed a broad range of specific risk, ranging from volatility in oil and natural gas prices to terrorism to avian flu, but they also provided examples of regional conflict or internal political instability that can cause or exacerbate risk. In a more interconnected world, they agreed, regional risks have larger consequences.

Kurtzman noted that 41 percent of global oil production comes from unstable regions of the world and that spikes in the prices of oil and natural gas are driven by specific events in the Middle East and elsewhere. Hoguet added that regional crises in the Middle East affecting the supply of oil are "biggest risks I'm concerned about." Kenneth Knight Jr. of the National Intelligence Council commented that oil prices are more likely to go "up and up, rather than down," and that, in addition the Middle East, political instability or other events in Nigeria, Bolivia or Venezuela could trigger spikes in oil prices. "Nigeria is one that's very troubling," he remarked of the important oil-producing nation, which could suffer a possible political crisis in the wake of recent electoral controversy. Miscik raised the importance of Russia′s natural gas exports to Europe, as well as the Kremlin's use of its resources as a foreign policy tool, and warned that political instability during transition could have far-reaching implications for Europe's energy supply and global energy prices.

"Terrorism is like disease," stated Richard Haass of the Council on Foreign Relations. We can fight it but never completely eradicate it. Hoguet added that up to this point, asset prices haven't been affected dramatically by terrorism, but "what would fundamentally change perceptions would be four or five 9/11s in one year." Haass disagreed, saying that he was much more concerned about the small acts of terrorism, which are cheaper, harder to detect and require fewer resources. Miscik noted that while terrorists' intentions have not been diminished, their capabilities have been.

Avian influenza was a major theme during last year's Global Conference; so why, asked Kurtzman, had the topic disappeared from the public forum? Haass responded that avian flu remains a great risk, and while "it will happen at some point, we don't know the lethality." People no longer talk about it because there is no new information about the potential lethality or timing. Unfortunately, he added, what is newsworthy is "how little is being done to prepare for it." Not nearly enough has been done to establish quarantine procedures or international codes of conduct, and he predicted that a "first wave will wash over with whatever consequences that it will have" and then governments will take stronger actions. Hoguet added that ultimately "the way governments deal with it will be a major signal to the market" about the larger financial and economic impacts from avian flu. If the response is orderly and controlled, then the markets will be much less concerned than if there is what Miscik called "political bad behavior" by politicians whose natural political instinct will be to cover up initial outbreaks.

A number of high-profile risks were of less concern to the panel. Echoing the other panelists, Hoguet said he not worried about the imbalance of trade between the United States and China, predicting that the imbalance "will work off over time." The panelists were also generally unconcerned about regional conflict in Asia because, as Haass said, "China needs global and regional stability." Underlining how far geopolitical risk has evolved over the past 20 years, the panelists were unanimous in expressing that one risk "not keeping them up at night" was conflict between great powers.

  9:25 AM - 10:40 AM

How Can We Really Help the World's Poor?

Speakers:
Gerard Caprio Jr. , Professor of Economics, Chair, Center for Development Economics, Williams College
Jacqueline Novogratz , CEO, Acumen Fund
Sally Osberg , President and CEO, Skoll Foundation
Zachary Pessin , President and CEO, Distributed Capital Group

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

Nearly 40 percent of the world's population -- 2.5 billion people -- lives on less than $2 a day, despite years of effort and multitudes of funds expended by governments, foundations and individuals trying to solve the problem. But is donor-supported aid the answer?

In an opening discussion of the definition of "social entrepreneurs," Jacqueline Novogratz of the Acumen Fund added that charity doesn't really solve problems in developing nations; helping entrepreneurs is a real driver for change in those emerging economies.

Professor Gerard Caprio Jr. of Williams College, explained that people forget that when countries have good incentive systems for their citizens to invest in their own futures, they don't need foreign aid —- on the other hand, nations without good incentive systems won't be able to put the foreign aid they receive to good use.

Poverty, added Zachary Pessin of Distributed Capital Group, is "a huge sign of inefficiency -- we are not leveraging human capital." Empowering individuals to create small and medium businesses is a significant driver of change.

Novogratz reminded the panel not to forget that the poor often also have unmet basic needs, such as access to water, and that corrupt governments and syndicates that control business operations prevent outsiders from competing.

Caprio pointed out that even in countries with good microfinance institutions, the reach is very small, at less than 5 percent of the target population. This suggests that financial systems in developing countries are not inclusive of the poor or that banking costs price the poor out. Pessin added that financial markets in developing nations tend to make their loans on 100 percent collateral, problematic for the creation of companies. Unless loans are risk-based, he said, the capital will not get to the entrepreneurs. The problem seems even deeper, according to Novogratz, because many of the world′s poor put their savings in the very banks that will not lend them money. Caprio noted that many people break out of poverty, only to fall back into it due to economic fluctuations.

While aid to developing countries is important, said Pessin, there must also be accountability. "We cannot simply write these countries a blank check," he said. On the topic of economic sustainability, Osberg offered the following example: In 1997 the World Wide Fund for Nature (formerly the World Wildlife Fund) and Unilever created the Marine Stewardship Council to certify fisheries for sustainable fishing. Its main objective is to safeguard the ocean's fish stock from depletion, which would make the business unsustainable. This is an example of a partnership in the right direction, she said, "but for this to be successful It will take governments, businesses and NGO′s to make it happen." This is the way jobs are created, she said.

  9:25 AM - 10:40 AM

Rebuilding the World Trade Center

Speaker:
Larry Silverstein , President and CEO, Silverstein Properties

On July 24, 2001, real estate investor Larry Silverstein was awarded the bid to lease the World Trade Center in New York City. Seven weeks later, the buildings were destroyed when two jetliners that had been hijacked by terrorists crashed into them.

Realizing that a symbol of hope was needed in those desperate times after 9/11, Silverstein and his team started planning to rebuild. Aside from the tragic loss of lives, 9/11 was also a devastating blow to the city's and the region's economies, he said.

Silverstein pointed to an estimated annual economic impact of $15 billion to the region with the reconstruction, including 100,000 jobs that will be connected to the project. Of course, this comes at a price: the investment in the towers, a memorial and expansion of a mass transit hub add up to $20 billion -- money pooled from public and private sources.

The new buildings are "designed to embody everything we learned in 9/11," said Silverstein. Apart from finding David Childs, the man behind the Freedom Tower, Silverstein and his wife traveled the world to find the right architects for the project. Three of the world's best were chosen, all of them Pritzker Architecture Prize winners: Richard Rogers and Sir Norman Foster of the UK, and Fumihiko Maki of Japan.

Of the Freedom Tower, he said that "this building is designed to withstand anything." An explosion specialist from Israel was consulted in the design. But safety is not the only field in which the Freedom Tower is state of the art. It is also a worldwide leader in environmental-friendly construction, technology and sustainable design. Rainwater will be stored and used to cool the buildings as well as irrigate the memorial park, for instance. "Notwithstanding my name," he said to audience laughter, "we won the Gold Standard (for energy-efficiency rating), which I think is pretty terrific."

The three towers planned thus far are drifting down in size. The tallest structure, the Freedom Tower, will stand 13,038 feet tall, the same height as the original towers. This will extend to 1,776 feet when one includes the antenna. "It will be the world's tallest building for about ten minutes," joked Silverstein, adding that a developer in Dubai is planning a larger structure in the near future.

Sir Norman Foster is the architect behind Tower No. 2. It has a distinct cant that defers to the memorial site below. The trading floors, Silverstein noted, are among "the most efficient trading floors you can ever find."

Richard Rogers designed Tower No. 3. Its theme is "lots of space, lots of grandeur," structural support on the outside of the building that provides for modern design and no column obstruction inside for a maximum usage of space. Tower No. 4, the Maki building, will be "simplistic in its design ... but exquisite in its simplicity," said Silverstein. The concept involves "enormous transparence, enormous amounts of light."

Different political player exerted massive amounts of pressure and had different agendas in the planning process. Political dynamics changed during the presidential campaigns in 2004 and the mayoral campaigns shortly thereafter. Silverstein emphasized that "negotiating with one (political player) ... was totally inefficient." Instead, he argued, different parties had to be brought together. All viewpoints were considered, and the final product is a compromise that reflects different preferences. "It took us a long time to get there but we finally got it."

The project is expected to be finished by 2011. It aims to augment the recent developments in downtown Manhattan that have resulted in more residential and retail neighborhoods. The rebuilding has by no means been an easy process so far -- it took five and a half years to get everybody on board. And it will likely continue to be a rocky road, said Silverstein, but "if you keep your eye on the goal and if you are determined, you can reach your mission."

  9:25 AM - 10:40 AM

Financial Innovations Forum for Accelerating Medical Solutions

Speakers:
Mary Beth Borgwing , Senior Vice President, NY Life Sciences Practice Leader, Willis Group Holdings
James Heywood , CEO and d'Arbeloff Founding Director, ALS Therapy Development Foundation
Fredric Pashkow , Chief Medical Officer, Executive Vice President, Cardax Pharmaceuticals
Neil Sandler , Managing Director, Symphony Capital LLC
John Walsh , Co-Founder, CEO and President, Alpha-1 Foundation

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

Health care is the single largest industry in the United States, with an estimated $1.9 trillion in expenditures. Spending for health-related issues is expected to grow in excess of 7 percent each year. In spite of suchheavy spending, a great deal of unmet need exists in the health field today. There are many more diseases than cures, with only about 10,000 of 30,000 diseases having treatments. In addition, millions of Americans remain uninsured or underinsured. On a positive note, health care's dramatic growth is fueling the increase in life sciences funding research and the number of public companies within the sector.

Although many variables are thought to affect medical solutions, this session was devoted to financial innovations driving medical solutions. Panelist James Heywood of the ALS Therapy Development Foundation explained how his brother's diagnosis with ALS shaped how he views the intersection between the financial and medical worlds. "I shifted the equation from a supply-side problem to demand-side problem," he said, from projects to process. This process involves determining what makes a drug, idea or company valuable. Consequently, his idea of accelerating medical solutions centered on an innovation designed to validate which idea is worthwhile.

Also inspired by a personal story, John Walsh of the Alpha-1 Foundation described how he and his brother were affected by the disease. Ironically, it was not the physical manifestations of the disease that were worrisome, but the fact that there was only one therapy, which was also in short supply. As a result, everyone receiving the therapy was under-treated. So he decided to invest in the infrastructure to hasten medical solutions. This investment, he added, has produced many successes: two new products licensed; three therapies in clinical trials; six therapies in clinical development pipeline; three innovative therapeutic pathways identified; and $28 million invested in research.

Much of the debate included discussion on pharmaceutical advancements, particularly drug discovery and development in the United States, where for the past 20 years there has been a commitment to combinatorial chemistry and high "throughput screening" (HTS). Panelist Fredric Pashkow of Cardax Pharmaceuticals supported the idea of focused drug design to move medical solutions forward through financial ideas. Unlike traditional HTS, focused drug design involves using fewer compounds and reducing preclinical development costs, which eliminated three years or more from the normal drug discovery trajectory.

In a discussion of ethics, panelist Pashkow underscored the importance of transparency and being connected to the best investigators in the field. "You must have trust, an inherently decent compound and a program that translates," he said. Also building on the notion of trust, panelist Neil Sandler of Symphony Capital LLC maintained that transactional trust is imperative to enhancing new discoveries. Mary Beth Borgwing of Willis Group Holdings spoke of the need to insure the risk of humans in clinical trials.

Pashkow suggested collaborating with foundations on drug discovery initiatives. An audience member similarly maintained that nonprofits are in the best position to deliver treatments in an unbiased manner. Regardless of which area each panelist worked, they all acknowledged the need for a system that is ethical and effective and produces returns for investors.

  9:25 AM - 10:40 am

Private Equity and Real Estate: Too Much Cross Collateralization?

Speaker:
John Troughton , Senior Director, Cushman & Wakefield Inc.

  10:50 AM - 12:05 PM

The Future of Energy Prices: A Debate with Boone Pickens and Steve Forbes

Speakers:
Steve Forbes , President and CEO, Forbes Inc.; Editor-in-Chief, Forbes
Boone Pickens , Entrepreneur and Philanthropist; Founder, BP Capital

Moderator:
Brian Sullivan , Anchor, Bloomberg Television

Legendary oilman Boone Pickens, who has often correctly predicted the movement of oil markets, believes that global oil production is near its peak, which means higher prices are inevitable. Steve Forbes, publisher of Forbes magazine and a former candidate for the Republic Party nomination for president, thinks politics, not technology, is standing in the way of more oil and once we fix that with the proper incentives, production will increase and prices will stabilize. Who's right? You can decide for yourself in what promises to be an insightful look at today's oil markets.

  10:50 am - 12:05 PM

Investing in Emerging Markets

Speakers:
Christopher Ailman , Chief Investment Officer, California State Teachers' Retirement System (CalSTRS)
Mark Farrington , Managing Director, Head of Currency Management, Principal Global Investors
Caleb Fundanga , Governor, Bank of Zambia
Ronald Peyton , Chairman and CEO, Callan Associates Inc.
Steven Schoenfeld , Chief Investment Officer, Global Quantitative Management, Northern Trust Global Investments

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

In the ongoing search for investment returns, emerging markets offer real opportunity. Yet they also pose challenges such as such as limited access to markets, immature legal and regulatory systems, political and currency risks, and enormous volatility. In March, these markets experienced declines that were second only to the August 1998 Long Term Capital Management crisis and the Russian debt default. What does the future hold? Could "contagion" return to emerging markets? Can risks be mitigated with innovative financial instruments? Panelists will discuss their visions for these markets and how financial technology could help hedge risks and produce both financial returns to capital and social benefits to the community.

  10:50 AM - 12:05 PM

Rebuilding New Orleans

Speakers:
Sean Cummings , President, Ekistics Inc.
John Kallenborn , President, New Orleans Region, JPMorgan Chase Bank, North America
Mitch Landrieu , Lieutenant Governor, Louisiana
Andrew Young , Co-Founding Principal and Chairman, GoodWorks International; former U.S. Ambassador to the United Nations

Moderator:
Scott Cowen , President, Tulane University

"Most of what we read in the press regarding the present state and future of New Orleans is negative," said Tulane President Scott Cowen as he opened the panel. "We are living a case study right now of rebuilding an urban city after the worst natural disaster this country has ever seen."

However, he added, there are also a lot of positive changes under way, and many opportunities. In fact, said Cowen, "Everything discussed here (at Global Conference) can be applied to the rebuilding of New Orleans."

Given those words, the panel of experts addressed what was going right in New Orleans and what still needs attention. Lt. Governor Mitch Landrieu tackled two primary myths about the area's damage. First, he said, Hurricane Katrina did not cause most of the city's devastation. On the contrary, most of the damage resulted when the levees broke. Had those levees been built strong enough to handle a hurricane above a category 3, the city would have been spared a great amount of destruction.

Second, Landrieu said, the issues New Orleans is currently dealing with are not unique to the city. What Americans saw on the ground -- poverty, racism, urban sprawl -- is happening across the country. The hurricane just brought national scrutiny to problems the public typically ignores, but which are in dire need of addressing.

John Kallenborn of JPMorgan Chase Bank explained that $40 billion has been put back into the New Orleans economy from insurance settlements; per capita income is up from 2006; unemployment is the lowest it has been, at 3.8 percent; and 80 percent of businesses are doing the same as before Katrina, 6.9 percent are doing better, and 6.4 percent are doing worse. "Surprisingly," said Kallenborn, "business is pretty good."

But more areas than not continue to need help -- including the levees, the Delta wetlands and a comprehensive approach to housing, education and jobs. However, the most vital problem -- and the most crucial component to solving the problems -- remains federal involvement, and state and local government alignment.

Current levee standards can only handle a category 3 hurricane, and Louisiana must invest in development and infrastructure that protect against the worst-case scenario. The panelists noted that the engineering exists to solve the levee challenges, but that no city can realistically be expected to finance construction of such a massive state-of-the-art levee system. As for wetlands protection, Landrieu said that an area the size of a football field is lost to the gulf every 30 minutes. He estimated that it will cost approximately $35 billion to secure and protect the deteriorating wetlands, which protect the river, the city and the region.

The panelists agreed that determining priorities -- jobs, housing, schools or infrastructure -- was complexl they are, after all, inextricably linked. While one might expect that a recovery master plan exists, the reality is somewhat more dismal. Only one of three phases has been completed, and it covers just the first five years post-Katrina. Moreover, it was prepared by someone who reports to the mayor's office. No long-term plan exists that has the buy-in at all levels.

Panelists insisted that the federal government must intervene to address all these issues and provide a master plan comparable in size and magnitude to the New Deal or Marshall Plan. According to Andrew Young, former U.S. ambassador to the United Nations and current chairman of GoodWorks International, it is not just the future of New Orleans at stake, but the future of the Mississippi Valley, which ultimately serves the entire nation.

All panelists expressed optimism about the future of New Orleans. Sean Cummings of Ekistics Inc., charged with developing a strip of land on the city's waterfront, detailed a number of opportunities for private-public partnerships to enhance and contribute to the restoration of the area′s cultural vibrancy, including culinary colleges, opera houses, museums and other developments.

The panelists also stated that race did not play a role in the post-Katrina disaster; the destruction hit white neighborhoods just as heavily as it did African American neighborhoods. Making the tragedy a "race issue," they asserted, has detracted from what is most important. But it does offer the opportunity to discuss the implications of making issues race-based, rather than political or economic.

The biggest opportunity of all will be for the 2008 presidential candidates, they noted. "Not one candidate has mentioned a plan for the reconstruction of New Orleans," said Ambassador Young, who predicted that the candidate who offers a long-term vision for the Mississippi Valley will be elected president. And he recommended that other states take time now to address their own issues of poverty, racism, health care and disaster-preparedness, all of which were pre-Katrina issues in New Orleans. Do it now, he said, to be better prepared during whatever catastrophes may come.

  10:50 AM - 12:05 PM

Big Bill Coming Due: How Will Government Pay Its Retiree Benefits?

Speakers:
Jarvis Hollingsworth , Partner, Bracewell & Giuliani; Chairman, Teacher Retirement System of Texas
Orin Kramer , General Partner, Boston Provident LP; Chairman, New Jersey State Investment Council
B. Scott Minerd , CEO and Chief Investment Officer, Guggenheim Partners Asset Management
Gerald Parsky , Partner, Aurora Capital Group

Moderator:
Bradley Belt , Chairman, Palisades Capital Advisors; former Executive Director, Pension Benefit Guaranty Corporation

More than a trillion dollars' worth of unfunded retiree benefits exist in the United States, and an estimated $40 billion to $70 billion in those benefits are from the state of California.

"Let the public educate politicians that they want solutions -- and now," said Jarvis Hollingsworth. "Education, environment, health care -- we need think about it now."

Orin Kramer warned that we should update our mortality tables "since we are basing facts on fiction rather than reality." That is the first step, he said, adding that news media aren′t picking up on the issue and thus there is little public awareness or urgency around the growing problem.

Hollingsworth also noted that governments must learn how to measure assets and liabilities correctly. The current system of "smoothing out" gains and losses is confusing and misleading. Texas, he explained, uses a five-year smoothing method and hedges against extremes by having a diverse portfolio. He expects a yearly return on investment to be at least 8 percent, adding that the best way to obtain an accurate view of the amount needed to cover the deficit is to make smart investment decisions and not rely solely on contributions. Investment returns must surpass costs and outpaying benefits by at least 8 percent, he added.

All panelists agreed that the GASBY method of accounting was more flexible and accurate than the FASB method. "Discounting at 8 to 9 percent is relative to the current public funds but is also very challenging due to the lack of expertise and antiquated methodology and narrowly defining asset allocations," said Bradley Belt.

"In the Nineties, the University of California had big pluses," he said, "but 65 percent of equity was only in 14 stocks -- talk about risk taking." Belt also stressed the importance of asset diversification. "The real question we must ask ourselves is, 'how are we going to finance these?' We need hybrid systems that cut risk but are also flexible."

Gerald Parsky laid out his plans for an effective allocation: 65 percent equity, 25 percent fixed income and 10 percent real estate. He lost almost $30 billion in 2001 through 2002, he noted. He advises investment in international markets and decreased reliance on domestic markets. Private equity is estimated to be between $4 billion to $10 billion, and with optimum allocation, returns to be between $1 billion to $2 billion per year.

This is considered to be the big drive for paying the cost of investment returns, figuring that no future contributions will be made. He asked, "Why shouldn′t the federal government want low borrowing costs, pensions, Medicare, toll roads etc.?"

On an optimistic note, Jarvis said that "we can begin to reserve for future obligations if we begin now, and plan intelligently. The public needs to become more aware of the problem, and understand that it will not just disappear. We need to face it and solve it together."

  12:15 pm - 2:00 PM

Lunch Panel
Global Overview

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

Speakers:
Gary Becker , Nobel Laureate, Economic Sciences, 1992; University Professor of Economics and Sociology, University of Chicago; FasterCures Board Member
Guy Laffineur , Global Head of Fixed Income, Head of London Capital Markets, Calyon
Rupert Murdoch , Chairman and CEO, News Corporation
David Rubenstein , Managing Director, The Carlyle Group

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

Despite healthy growth in 2006, the global economy still faces many challenges, including the complexity of global trade and financial integration, poverty, nuclear proliferation, energy and climate change. How will the global economy cope with these risks and opportunities? How should investors and corporations deal with excess liquidity and low inflation environment? Where are the highest risks and potential rewards to be found? Where will the highest growth be? Can China's growth continue with the appreciation of the yuan? What is the impact of the emergence of India on global prosperity?

  2:10 PM - 3:25 PM

China's Investment Climate: Riding the Second Wave

Speakers:
Jonathan Anderson , Managing Director, Asia-Pacific Economics, UBS
Timothy Dattels , Partner, TPG Capital
David Rubenstein , Managing Director, The Carlyle Group
Shelly Singhal , Founder and CEO, SBI Group

Moderator:
Henny Sender , Senior Special Writer, The Wall Street Journal

China's remarkable economic growth over the past decade has ushered in a paradigm shift in its investment climate, and trends, challenges and opportunities were the subject of this panel. Despite three popular myths about China's economy, they concluded, China remains an attractive investment destination. The key is to maintain a long-term outlook and to exercise patience.

Three misconceptions about China's economy plague many observers, distorting the picture of the country's investment climate. The first is that China's economy is about to crash and burn. Jonathan Anderson of UBS noted that although the economy is overheating in some sectors, people are still making a lot of money, and that there is not a massive wave of overinvestment.

Myth No. 2 is that opportunities to invest in China's export-driven economy, supported by cheap labor, are drying up because of rising labor costs. Anderson dispelled this misconception by noting that most Chinese companies serve a growing and long-term domestic market. Myth No. 3 concerns a supposed backlash building against foreign investment. David Rubenstein of The Carlyle Group asserted that this is not the case. The only significant barrier to foreign investment, he said, consists of restrictions on investing large stakes in state-owned enterprises, and taking them private.

Rubenstein captured the need for a long-term outlook by noting, "Bismarck famously said that there are two things you don't want to see being made. One was legislation, the other was sausage. Maybe he would have added 'pre-IPO' (basically, quick-profit) deals."

The Chinese don't wake up every morning thinking how they can make U.S. investment firms rich, added Rubenstein. Instead, China, which suffers no shortage of funds, hopes to gain foreign technology and other expertise through foreign investments. Investors who seek to make quick profits will probably be less successful than those with a long-term outlook. He noted that private equity investors, tending to stay invested even during downturns, can achieve better rates of return once the economy rebounds.

Two long-term challenges China faces present investment opportunities. Anderson noted that the demographic changes brought about by its one-child policy, and the resulting possibility of not being able to finance pensions for China's aging population, pose significant challenges to economic growth.

From an investment standpoint, China's consumption pattern is an "investment holy grail," said Timothy Dattels of TPG Capital. The rising consumption of automobiles is an example of the huge growth potential in certain sectors of the economy.

Dattels and Rubenstein suggested that "green investment," to finance solutions to China's serious environmental problems, will be another huge growth opportunity. With regard to mitigating China's environmental problems, Shelly Singhal of SBI Group added that China is capable of quickly mandating change in environmental standards without much debate. Rubenstein summarized by noting that the best investment targets are in companies that provide goods and services for the domestic Chinese market. Financial services, health care and consumer durables bode well for long-term growth.

In addition to serving as a destination for foreign investment, China is also investing abroad as its economy matures. The Lenovo deal, where the Chinese firm Lenovo bought out IBM's personal computing division, serves as a harbinger of a future trend. Excess liquidity in China also serves as motivation for outward investment from China. With almost $4.5 trillion of liquidity sitting in Chinese banks -- earning low rates of return -- China is destined to become a huge exporter of capital in the next 10-20 years. The United States should be prepared for such flows of capital coming in from China, and not react, as during the CNOOC-UNOCAL deal, as if the "Red Army were about to invade Los Angeles," quipped Rubenstein.

The panelists concluded the discussion by noting that despite China's attractiveness as an investment destination in the years to come, macroeconomic and political pressures should not be forgotten. It will be important to watch how China manages its transition from being a low-cost producer of goods to a high-value manufacturing and services economy. Problems such as environmental issues and rising inequality will exert both political and economic stress on the country′s future. As its economy grows, its leaders' penchant for exerting a more dominant political role on the world stage may also have long-term effects on its investment climate.

  2:10 PM - 3:25 PM

The Eyes of Texas Are Upon the Future of TXU

Speakers:
David Bonderman , Principal and Founding Partner, Texas Pacific Group
Laura Miller , Mayor, Dallas, Texas
Pat Wood III , Former Chairman, Federal Energy Regulatory Commission; Independent Energy Developer

Moderator:
Maria Bartiromo , Anchor, "Closing Bell with Maria Bartiromo," Managing Editor and Anchor, "The Wall Street Journal Report," CNBC

At the end of February 2007, newspapers reported the largest leveraged buyout in history, when a group of private equity firms led by Texas Pacific Group (TPG) purchased the Texas utility TXU for $45 billion. The deal made waves financially, but also environmentally. The buyers worked closely with the Natural Resources Defense Council and other environmentalists to broker a deal designed to appeal to those on the green side. Among other actions, TXU agreed to scrap eight out of 11 planned coal plants.

However, such a good start is not good enough, according to Laura Miller, the Mayor of Dallas. Claiming that the three remaining plants slated for construction will be extremely dirty and threaten the air quality of Texas cities, Miller continues to oppose their construction. She argued that other clean energy options are available to meet Texas′s growing demand -- options like the wind-heavy portfolio put together by panelist and former chairman of the Federal Energy Regulatory Commission, Pat Wood.

David Bonderman, founder of TPG, continually reminded the panel of TXU's agreement on the importance of clean energy, citing its plans to further develop wind and nuclear power. He also pointed to its existing RFP's requesting bids to deploy IGCC (integrated gasification combined cycle) "clean coal" technology.

The problem, he asserted, is that these cannot meet expected near-term energy deficits. Citing projections from the Electric Reliability Council of Texas, Bonderman pointed out that without new capacity, Texas will fall below its desired 12.5 percent reserve level of generating capacity within a few years, and be as low as 5 percent by 2012. This could translate to rolling blackouts and power outages during heat waves.

While the new technologies have the potential to help in the long run, Bonderman stated that uncertainty in technology and lengthy permitting processes mean that deployment of nuclear or IGCC cannot be relied on to meet the near term energy demands -- a claim that Miller disputed.

Miller also took issue with the pricing structure offered by TXU, claiming that the 10 percent rate reduction offered by the utility was insufficient. She argued that while 10 percent was an improvement over nothing, it should not be viewed favorably, given that rates shot up hugely shortly after Hurricane Katrina but never dropped significantly once fuel expenses lowered again. Bonderman countered by pointing out that electricity is priced on marginal production costs, which in Texas means they are "condemned to price against gas for the foreseeable future." And, he said, gas prices remain up 300 percent, while electricity prices have only climbed 20 percent.

Miller also expressed concern that the tremendous debt taken on by TPG and Kohlberg Kravis Roberts & Co (KKR) would lead them to imprudent cost-cutting measures, potentially jeopardizing quality of service in the deregulated Texas utility market. Bonderman answered that "there is nothing in this deal structure which is prohibitive or over-leveraged." However, he said, the biggest and simplest reason for allaying debt concerns is that the "cost of debt is less than the cost of equity." The worst-rated debt is still cheaper than equity, so concerns over how debt quality will affect profitability are unfounded.

Over the course of the discussion, it became clear that the panelists generally agreed upon the importance of cleaner energy technologies for the future of Texas. The disputes centered mainly on details over the form and necessity of new capacity built over the near term. Miller was concerned both about consumer and environmental costs, believing they could both be lower. Citing her status as a public official, she summed up the concerns she was trying to address on behalf of her constituents: "They have to breathe, and they also have to be able to afford electricity." Bonderman declared that TXU would be doing the best possible balancing of both.

  2:10 PM - 3:25 PM

An Ounce of Prevention Really Is Worth a Pound of Cure: The Economic Burden of Chronic Disease

Speakers:
Valerie Fleishman , Chief Operating Officer, New England Healthcare Institute
Wayne Gattinella , President and CEO, WebMD
Jay Gellert , President and CEO, Health Net Inc.
Hala Moddelmog , President and CEO, Susan G. Komen for the Cure

Moderator:
Ross DeVol , Executive Director, Economic Research, Milken Institute

Chronic diseases in the United States have an enormous impact on health. This year alone, approximately 5 million Americans will be diagnosed with cancer, heart disease, stroke or diabetes; and 1.5 million will die from one of these conditions.

All these diseases are highly preventable. The fact that they share some of the same risk factors makes a strong argument that coordinated prevention programs have the potential to make great strides in controlling these diseases.

Chronic diseases cause an economic burden as well. Approximately $277.5 billion will be spent on just seven chronic diseases in 2007 in the United States. It's safe to assume that allocating resources toward prevention would be a cost-effective alternative to medical treatments.

When asked to discuss recent trends in chronic disease among insured individuals, Jay Gellert of Health Net Inc. discussed prenatal outcomes, smoking and obesity in California. Although more than 45 percent of births are from Medicaid-eligible mothers, he said, California rates 43rd in the nation for preterm labor/low-birth-weight children, and is in the top 10 for first trimester prenatal care. California also ranks 50th in the nation in smoking.

Tragically, the war on obesity has not been so successful. Comparing the obesity and smoking campaigns, Gellert noted several differences: ads for poor food choices are not as effective as anti-smoking ads; the differential tax for smoking is nonexistent for foods leading to obesity; there was no single massive campaign targeting obesity; campaigns do not address issues like increased access to processed foods for poor populations; and obesity prevention is largely geared toward adults rather than young people.

As a result, Gellert said, California is in the bottom 10 nationally for diabetes prevention. "We have a long way to go in talking about prevention," he concluded.

Much of the debate surrounding prevention has focused on personal responsibility versus societal responsibility. Hala Moddelmog of Susan G. Komen for the Cure stated that "60 to 70 percent of all chronic diseases are preventable through behavioral changes." So why haven't we made further progress? "We get what we pay for and pay attention to," replied Valerie Fleishman of the New England Healthcare Institute. Ironically, less than 5 percent of spending in this country has been allocated for healthy behavior, while health-care spending has increased annually.

The 2008 presidential candidates have focused on universal health care, but the panelists suggested that a broader approach to health care is imperative. Interestingly enough, Fleishman said, residents in Massachusetts were not necessarily any healthier since the state implemented health-care reform. Other determinants must be considered. A conversation on poverty, racism, lack of transportation and unequal access to care must be included in discussions about prevention, as these factors affect behavioral changes in certain populations.

As a possible solution to disease prevention, Wayne Gattinella of WebMD suggested that better information leads to better health. Since 80 percent of U.S. households have Internet access and eight out 10 use the Internet for health information, he suggested using computer-based approaches to aid in preventive health initiatives. He also recommended the adoption of electronic medical records to reduce errors, increase efficiency and increase quality of life.

Gellert mentioned incentives to encourage people to adopt healthier behaviors but cautioned that "incentives in the absence of tools don't work. Tools with community involvement work." Data was presented that showed financial incentives beginning at $100 will interest people in changing their behavior.

The session concluded with moderator Ross DeVol of the Milken Institute asking the panelists to note one aspect of the health-care system they would change. Responses included: using the Internet for health as commonly as it's used for music or checking stocks; increasing the intensity of the war on obesity; changing patent laws so that prevention drugs can be tested; and encouraging scientists and researchers to share data.

  2:10 PM - 3:25 PM

The New Challenges in Corporate Governance

Speakers:
Brian Farrell , Chairman, President and CEO, THQ Inc.
Seth Jaffe , Senior Vice President, General Counsel and Secretary, Williams-Sonoma Inc.
Gregory Taxin , CEO, Glass, Lewis & Co. LLC
Jon Woodruff , Head of Global Technology, Media and Telecommunications M&A, Goldman Sachs & Co.

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

"Rules exist to govern behavior," said Alan Greenspan in 2005, "but rules cannot substitute for character." Businesses today must abide by regulations passed in response to the scandals of the late 1990s and early 2000s. However, while rules may ensure a certain level of responsibility, the panelists indicated that the regulatory changes had not been wholly positive.

At issue was the cost benefit tradeoff for compliance programs -- balancing the costs of compliance against the benefit to shareholders in the long run. The panelists agreed that the new regulations had improved visibility and transparency but also produced some negative consequences. As Jon Woodruff of Goldman Sachs noted, "Rules-based systems come about as a result of problems. ... (They) solve problems and move us in the right direction but create their own problems."

One positive contribution of recent regulations is the increased attention to and discussion of compliance and governance from boards of directors. Woodruff noted "significantly greater recognition within the boardroom of the responsibilities and role of board members." Seth Jaffe of Williams-Sonoma described his company's efforts to implement Section 404 of the Sarbanes-Oxley Act to target risk areas and focus on process improvement within business. Self-policing and debate on boards increased, as well, he said.

However, overemphasis on compliance at the expense of business planning has become a significant problem. Brian Farrell of THQ Inc. said "more time [was being] spent in boardroom on compliance rather than strategy. We need to move back away from total focus on compliance." Efficiency in this new environment is necessary to ensure that the board has time to deal with the business itself after covering appropriate compliance issues.

The panel also addressed concerns about the widespread application of particular criteria, or one rubric, to assess compliance. Although investors may need measures to assess company performance, investor-driven attempts to create a comprehensive approach to evaluate company value may be driving firms to a single corporate governance structure. These changes may result in less than optimal behavioral changes. Gregory Taxin of Glass, Lewis & Co. emphasized the need to "appreciate subtleties of each company′s management team on a company-by-company basis, not on broad-brushed generalities."

The pressure to stay off lists of "badly governed companies" is also exacerbating problems. Performance scoring by research firms focus on how a company performs according to a set of fixed criteria. While some of the criteria do cover important aspects of governance -- such as alignment of shareholder and board member interests -- all criteria are applied, "whether you're a startup biotech or old-style steel manufacture," despite the differences in size, composition and industry focus. Taxin noted that this investor emphasis on a one-size-fits-all rubric may cause companies to "move from the diverse landscape of governance practices they previously had and converge on (these criteria)."

Panel members also tackled the issue of shareholder engagement is such issues as executive compensation. "Shareholders rightly care about exec compensation because we believe that pay drives behavior," said Taxin. "Shareholders are interested to know in what manner execs are incentivized -- toward growth, toward acquisitions or toward selling the company" -- because that incentive will drive executive conduct.

Jaffe noted too that many companies suffer from the lack of feedback mechanisms linking shareholders to the board. He suggested that "the fundamental cure for most corporate ills is disclosure," but other panelists disagreed. "It's fine to have disclosure," countered Taxin, "but there's no way for feedback on that disclosure." While feedback systems exist in commonwealth governments, such as Australia and the UK, these only allow for an advisory or nonbinding vote by shareholders, which do not obligate the board to act on shareholder feedback. "Having a cleaner place for feedback and allowing a market mechanism ... for shareholders to provide feedback ... would both be healthy for public companies and likely stave off any other regulatory action ... which would be in everyone's interest," he argued. "When shareholders object, there ought to be some mechanism by which shareholders can carry the day" regarding representation, major actions and decisions by the board.

Jaffe also reminded the audience that stakeholders need to "separate the drama from the reality." Concerns over corporate governance are legitimate, he said, but only occur in a small number of cases. Woodruff concluded, "We are trying to create a system that addresses problems that occur at 1 percent of companies. We are balancing decisions that prevent big problems in a small subset of companies without negatively impacting all companies."

  2:10 PM - 3:25 PM

Building Global Mortgage Markets: Engines of Prosperity in the Developing World

Speakers:
Guillermo Babatz , CEO, Sociedad Hipotecaria Federal
Theodore Janulis , Managing Director, Global Head of Mortgage Capital, Lehman Brothers
Michael Lea , Principal, Cardiff Economic Consulting

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

Panelists addressed the proliferation of mortgage-backed securities in developed countries, starting in the 1980s, and the various efforts to make them available in developing and emerging countries. They agreed that the spread of such securities would be beneficial for citizens of emerging countries, who could tap their real estate equity for other investments.

It is of no surprise that the United States leads the world, in terms of the amount of mortgage consumed both as a percentage of GDP and outstanding loan amounts. The U.S. also leads in residential mortgages, with nearly six times as many as No. 2 Japan. Residential mortgages allow homeowners to leverage equity and afford larger homes. Additionally, second mortgages are the major source of capital for entrepreneurs, more so than venture capital.

The secondary mortgage industry in the United States took of in the 1980s, after the savings-and-loan crisis and the mandate of the Resolution Trust Corporation to liquidate the assets of insolvent S&Ls. As a result, banks were able to enter the mortgage business and broker deals. These days mortgages represent the largest asset class in the U.S. bond market, having surpassed treasuries. Recent data indicates that 82 percent of mortgages were funded through securitization, compared to 64 percent in 2002 and 49 percent in 1998.

With the rest of the world trailing the United States in the secondary mortgage markets, there exists a tremendous opportunity for firms to develop these markets. Michael Lea of Cardiff Economic Consulting formerly ran the international side of Countrywide's home loan division and headed the company's diversification strategy into the UK. Countrywide decided to enter Europe, he said, because of the region′s established economic and legal infrastructure. However, with the tremendous opportunity for growth in Asia and the push by many governments for home ownership, Countrywide recently moved into India and now employs 2,500 back-office people.

The healthy mortgage market has also migrated to south of the border. According to Guillermo Babatz of Sociedad Hipotecaria Federal, the Mexican government felt the importance of the secondary mortgage markets and has established the legal and economic infrastructures to support this market. Mexicans have little domestic savings to finance mortgage growth over the next few decades, and these secondary markets will help them access foreign and domestic investments. Historically, although home ownership in Mexico has been high, homes are typically bought with cash, and mortgages were very rare. These days, roughly 30 percent of home loan origination in Mexico is through the mortgage markets, a figure that is expected to grow. Additionally, with foreigners investing into the Mexico's secondary market, the risk has shifted away from Mexican institutions, prompting expectations of further growth.

Latin America, and Mexico in particular, remain significant areas for growth in mortgage-backed securities. Reform has built a stronger and larger investor base that is now enjoying economies of scale and scope. With better macroeconomic conditions, competition and more transparency in the Latin American mortgage market, mortgage rates are expected to dramatically decrease and make it less costly for families to purchase homes. And other parts of the developing world offer opportunities as well. In China, for example, mortgages represented only 11 percent of Chinese GDP. However, many experts do not expect much more adoption by the Chinese in the near future for mortgage-backed securities since local banks still hold large reserves that they can lend. However as urbanization increases, demand for housing will increase and the secondary mortgage market will play a huge role.

Panelists said they expect the secondary mortgage markets to play a crucial role in the development of the real estate markets and the local economies of many developed and developing nations in the coming decades.

  2:10 PM - 3:25 PM

Making Entrepreneurship Global

Speakers:
Umair Khan , Chairman, Folio3
Alan Patricof , Founder and Managing Director, Greycroft LLC
Carl Schramm , President and CEO, Ewing Marion Kauffman Foundation

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

Entrepreneurship is vital to the economic well-being of a nation, the panelists all agreed, and proper financial structures and incentives can facilitate entrepreneurship. The featured speakers, all of whom possessed a combination of entrepreneurial experience and academic knowledge, covered three main topics: 1) the importance of entrepreneurs to an economy; 2) the kinds of people who succeed as entrepreneurs; and 3) the societal factors that facilitate and assist the creation of entrepreneurial ventures.

Carl Schramm noted that in the United States, "one half of all new job creation comes from firms that are less than five years old." This figure indicates just how important the entrepreneur is to a nation′s economic growth, he said. It is important that an economy have a mix of older, larger, more established businesses, as well as newer, smaller, ventures. To that end, a society must create incentives toward productive entrepreneurial behavior, as well as disincentives toward nonproductive behavior.

Though they agreed it was a complex issue, the panelists all felt that one of the keys to defining an entrepreneur is a willingness to take risk. Alan Patricof noted that entrepreneurs are risk-takers by nature. While some innovations and technological breakthroughs can take place at universities, real entrepreneurial activity usually takes place outside the confines of academia.

The societal and environmental factors that promote an entrepreneurial culture break down into two categories. The first of these is access to capital. While there are people everywhere who have good ideas, many of them have no means to bring these ideas to market. Particularly in developing countries, individuals often lack access to the capital necessary to turn their ideas into reality. Many countries lack the institutional mechanisms that allow for profitable exit strategies for investments. In turn, this leads to reluctance to undertake initial investments and provide capital for startups. Improving available exit strategies and access to capital is a key to promoting entrepreneurship around the globe, particularly in developing countries.

The second factor that promotes or hinders an entrepreneurial environment is the stigma attached to business failure. One of the reasons the U.S. enjoys a robust entrepreneurial environment is that the stigma of business failure isn′t lasting. In fact, many individuals whose businesses fail learn from their experiences and go on to start successful business later in their careers. The panel noted that "failure is the mother of success." They noted, however, that in many countries it is seen as shameful to fail at starting a business. By taking steps to change this cultural perception, nations can facilitate a more entrepreneurial culture.

Woven throughout the panel's discussion was the fact that entrepreneurship is a global phenomenon. The panel noted that one of the problems faced by developing economies is that often their brightest minds come to the United States for schooling. These bright young individuals often start companies in the U.S. rather than return to their home countries. A second dimension of the global theme was that every entrepreneur should globalize his or her business from the very start. As an example, Umair Kan noted that there are tremendous cost savings that a startup can achieve by outsourcing development and production.

While the panel discussed a variety of topics, the theme remained the same: Because entrepreneurship is so vital to a country′s economic growth, governments should do everything that they can in order to encourage the activities of entrepreneurs. Schramm noted that entrepreneurs have pulled the United States out of the last five recessions, a mark of how important the entrepreneur is to the national economy.

  2:10 PM - 3:25 PM

Real Estate Investments That Benefit Portfolios, Communities and the Environment

Speakers:
Daniel Beaney , Managing Director, Shamrock Capital Advisors Inc.
Allan Emkin , Managing Director, Pension Consulting Alliance
Barry Schlesinger , Chairman, KW Fund Management Group
Lee Winslett , Vice President and Fund Manager, Community Investment Department, Wells Fargo Bank

Moderator:
Deborah La Franchi , President and CEO, Strategic Development Solutions

In actuality, double bottom line funds have a triple bottom line, said moderator Deborah La Franchi of Strategic Development Funds. Such funds and investment vehicles accomplish three objectives: (1) the generation of market-rate returns for investors; (2) investment in low-income communities to satisfy a social mission; and (3) engagement in environmental and sustainable buildings and activities. However, the panelists stressed repeatedly that these are financially driven investments with secondary and tertiary benefits. This understanding has become increasingly important as the industry has matured and investors compare these returns to the rest of the real estate market. Several years ago, investors did not have same financial expectations.

La Franchi provided an overview of double bottom line funds. Across the industry, she said, $8 billion to $10 billion is currently invested in double bottom line funds. While this is a large number, it is only a fraction of the half a trillion dollars invested in private equity funds. The average size of double bottom line funds ranges from $50 million to $200 million of equity. The investor profile is typically an institutional investor, such as a bank.

Double-bottom line funds were initially created as commercial vehicles for investment banks to obtain Community Reinvestment Act (CRA) credits, said La Franchi. But the driving force has shifted as these investments now create social value without sacrificing on economic value. Today foundations are investing both to achieve mission and see market-rate returns. Similarly, pension funds, such as CalPERS, are increasing their portfolio allocations, and insurance companies are following suit.

All investors have similar priorities, with the first being the expectation for solid returns. The panelists concurred that these are not subsidized investments. The added benefits are job creation, retail service support and the creation of housing to revitalize communities so that further development happens.

The fund managers of double-bottom line funds consist of highly qualified teams of real estate experts who have the capacity to raise capital and work with third-party developers to assist them in redefining projects if need be by bringing them additional expertise to underwrite projects, evaluate contaminated sites, and structure and protect investments. This is not passively managed money; the fund managers are very active investors.

The terminology applied to these types of investments is another important aspect to understanding the industry, as terms range from "socially responsible investing" to "mission-related investing" to "double bottom line." Daniel Beaney of Shamrock Capital Advisors Inc noted that regardless of the terminology; such investments generate appropriate risk-adjust returns and stimulate economic development in low- or moderate-income areas. Shamrock does so by diversifying across property types and investment structures. Under the Genesis Fund, Shamrock initially raised $85 million in 1999 to invest in Los Angeles. Today the fund invests throughout Southern California and achieves mid-teen returns, net to the investors.

Similarly, Lee Winslett of Wells Fargo Bank's Community Investment Department commented that he is focused on the business proposition first and foremost, after which he looks at the second bottom line. Winslett classifies Wells Fargo as a place-based investor, wanting to put money in traditionally overlooked areas and hoping to create a competitive advantage by doing so. Winslett commented that "groups that we fund are probably stronger, as they signed up for a tougher mission and have to please two masters."

Barry Schlesinger of KW Fund Management Group is currently capitalizing three funds: Bay Area Smart Growth Fund, Northwest Louisianan and Puget Sound. To date, KW Fund Management Group has $1.25 billion in double-bottom line product, he said, and has achieved greater than 30 percent IRRs on average. The fund's strategy is to go into markets where it has significant presence and people on the ground. As a result, 75 percent of the deals are done on an off-market basis. The Northwest Louisiana fund is the first rural-focused fund in the country. Schlesinger says he saw a niche market that was underserved and the opportunity for above-average returns. To pursue a social mission as well, Schlesinger's Northwest Louisiana encourages participation from the local investment group by lowering the typical minimum investment requirement of $3 million to $50,000. Further, the fund is providing development experience, intellectual capital and sponsorship, in terms of national companies who will work with local companies to bring them up to a standard that they are not at now. This fund differs from the Puget Sound and Bay Area funds in that it is "more socially involved but it is still economically driven."

Daniel Beaney of Shamrock Capital Advisors Inc provided an additional example to illustrate the success of double bottom line funds; a $20 million investment in South Bay Pavilion in Carson, Calif. In addition to the economic returns, one of social benefits was the creation of 400 jobs, 80 percent of which were filled by Carson residents. The city is a major stakeholder in the project and provided subsidies to the partnership in order to attract tenants who otherwise wouldn,t want to be in this market.

Other projects in the immediate area are now attracting institutional investors as they now realize there is money to be made in this market. There are abundant metrics to evaluate the financial performance of such projects. For Beaney, his role is also to "quantify to the investor base that we are making a meaningful impact in providing jobs for low- to moderate-income people in low- to moderate-income communities"

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  2:10 PM - 3:25 pm

Portable Alpha: The "What, Why and How" Considerations of a Successful Program

Speakers:
James Dunn , Managing Director, Wilshire Funds Management
Andrew Smith , Partner; Portfolio Manager, Fairfield Greenwich Group

Portable alpha has become a hot topic and allocations to this strategy appear to be increasing at a growing rate as institutional investors search for new ways to obtain alpha in this lower-return environment to meet funding expectations. This roundtable will discuss the growth in interest in portable alpha in terms of "what" exists within the marketplace and the types of institutional investors who are either considering or implementing portable alpha; "why" investors are drawn to portable alpha as a solution for their portfolios and what return expectations look like; and "how" investors are implementing successful programs. The bulk of the discussion will be centered on the "how" in terms of identifying what are the appropriate alpha strategies, determining what alpha sources are suitable within those strategies, identifying and getting the most out of your beta, and the operational considerations and pitfalls that exist within the portable alpha framework.

  3:35 PM - 4:50 PM

Activist Investing

Speakers:
David Batchelder , Founder and Principal, Relational Investors LLC
Richard Elden , Principal, Lakeview Investment Manager LLC
Edward Garden , Founding Partner and Portfolio Manager, Trian Fund Management LP
Russell Read , Chief Investment Officer, California Public Employees' Retirement System
Christopher Young , Vice President, Director of M&A Research, Institutional Shareholder Services

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

The recent proliferation of hedge funds, going-private transactions and capital overhang in the market has prompted a number of managers to pursue new strategies to achieve target returns. Activist funds, seemingly focused on an old-but-new-again strategy, have received considerable attention. While some draw inevitable comparisons to "raiders" and "takeovers" of the 1980s, this most recent generation of activist investing suggests catalysts that enable companies to realize shareholder value. Managers of today's activist funds do an enormous amount of research on their targets, take large positions in the companies and often take great pains to characterize themselves as friendly. Among the questions panelists will tackle are: Can hedge-fund activism lead to long-term, sustainable value growth? When does a fund become activist - and who are they friendly or hostile to? What's the interplay between private equity and activist funds? How long will a fund involve itself with management, the board and other shareholders? What is the empirical evidence of share-price performance before and after an activist disclosure?

  3:35 PM - 4:50 PM

Can Business Solve Africa's Challenges?

Speakers:
Caleb Fundanga , Governor, Bank of Zambia
Mehret Mandefro , Founding Director, TruthAIDS
Eric Osiakwan , Executive Secretary, African Internet Service Providers Association and Ghana Internet Service Providers Association
Gladwell Otieno , Founding Member, Africa Center for Open Governance (AfriCOG); former head of Transparency International (Kenya)

Moderator:
Laurance Allen , Editor and Publisher, ValueNewsNetwork.com

For five decades, business has been sidelined from discussions of economic development in Africa. The terrain has been dominated instead by rival geopolitical forces, well-meaning international development agencies and non-governmental organizations for which the private sector was an alien phenomenon - at best irrelevant and at worst exploitive. Today the role of the private sector in international development, and the importance of transparency and good governance to economic development, have taken center stage. Discussions have gone beyond increasing aid and debt-forgiveness. The new focus is on the large "missing middle" - investments between World Bank project finance and micro-lending - that is occupied by job-creating small- and medium-sized firms. China and India, in particular, have opened a new silk road to Africa. What are U.S. companies and financiers waiting for? Those intimate with Africa's problems and opportunities will talk about how they see transparency and governance from a truly African perspective.

  5:00 PM - 6:15 PM

2007: The Year of Private Equity?

Speakers:
Leon Black , Founding Partner, Apollo Advisors LP
David Bonderman , Principal and Founding Partner, Texas Pacific Group
Thomas Lee , President and CEO, Thomas H. Lee Capital LLC
David Rubenstein , Managing Director, The Carlyle Group

Moderator:
Maria Bartiromo , Anchor, "Closing Bell with Maria Bartiromo," Managing Editor and Anchor, "The Wall Street Journal Report," CNBC

They were once some of the most recognized public companies in America: Reader's Digest, Dunkin' Donuts, Toys-R-Us, Neiman Marcus and Metro-Goldwyn-Mayer. No more. As part of a trend of mergers and acquisitions, these companies were bought by some of the largest private-equity firms in America. Once feared, these private-equity firms have changed their image and are now viewed by many as financial saviors, paying good money for underperforming companies and turning them around. And they are averaging 13 percent returns in the past two decades, which is good for institutional investors. Of course, not everyone views them so positively. Flush with money, and running short on targets, these investors have become more aggressive in their search for firms to buy, which has raised concerns with regulatory agencies both within and outside the U.S. Bottom line: Are private equity firms a help or a hindrance to the economy? Either way, what's driving this trend? Is it overregulation (i.e. Sarbanes-Oxley) or just cheap debt that makes such deals more doable?

  9:00 PM - 10:00 PM

The Future of the Internet
Milken Institute Leadership Program and Associates
By invitation only

Speakers:
Ross Levinsohn , former President, Fox Interactive
Jonathan Miller , former Chairman and CEO, AOL

This session is by "invitation only" and is limited to invited guests. If you are interested in attending, please send an e-mail request to jmeehan@milkeninstitute.org.

Wednesday, April 25, 2007

  6:30 AM - 7:45 AM

Vistage Breakfast
By invitation only

This session is by "invitation only" and is limited to invited guests. If you are interested in attending, please send an e-mail request to jmeehan@milkeninstitute.org.

  7:55 AM - 9:10 AM

Global Markets: Where Are They Headed?

Speakers:
Todd Boehly , Managing Partner, Guggenheim Partners LLC.
Stefan Green , Managing Director, Goldman Sachs & Co.
David Jackson , CEO, Istithmar
François Pagès , CEO, Calyon Securities

Moderator:
Maria Bartiromo , Anchor, "Closing Bell with Maria Bartiromo," Managing Editor and Anchor, "The Wall Street Journal Report," CNBC

A confluence of factors is shaping the dynamic state of global markets today. Simultaneous growth in the four major economic regions of the world, the introduction of new financial instruments to diversify risk and the growing influence of private equity account for the changing landscape of global markets. With the Dow exceeding 13,000, the global investment climate certainly looks rosy. Will the good times continue, or have we reached an investment bubble?

Francois Pages of Calyon Securities pinpointed one of the major determinants of the changing global investment terrain as "a huge transfer of wealth over the past couple of years from Western countries, as well as Japan, to emerging markets." In 2005, he said, foreign investment inflow into emerging markets exceeded $700 billion. In addition to this huge transfer of wealth, all four major economic areas in the world are growing at the same time, a phenomenon that Stefan Green of Goldman Sachs said has not been seen in more than 15 years.

Todd Boehly of Guggenheim Partners highlighted another major strand in the fabric of global markets: the diversification of financial products. The combination of private equity and credit markets has resulted in what Boehly called "a game of musical chairs," where the definition of financial products is changing every day. Private equity is taking a larger share of global M&A activity, accounting for 22 percent in 2006. One major reason for the increasing role of private equity is the fact that many companies who seek capital, or need to make significant changes, are seeking the flexibility that private investment offers. With many public companies suffering under the weight of onerous public scrutiny and litigation, the incentives to reduce public ownership shares have increased the demand for private investment.

Various investment instruments have distributed risk all over the world in the past seven years, facilitating the flow of capital from the West to emerging market areas. Panelists agreed that collateralized bond obligations (CBOs) and collateralized loan obligations (CLOs) come with certain risks, but Boehly noted that "CBO markets are here to stay." Pages echoed Boehly's thoughts, stating that there are "golden eggs" to be found in CBOs and CLOs.

Panelists also surveyed the roles that China and Japan will play in transforming the contours of global markets. While the performance of the world's economy used to be inextricably tied to that of the United States, Green observed that China is becoming a driver of Asia′s economy -- and a more important trading partner for Japan than the United States this year. "China has reached self-sustaining takeoff speed" in its economy, he added. Absent political turmoil and major economic problems, China's emergence presents opportunities for further investment.

"People underestimate how much Japan has turned the corner in the past couple of years," said Green in response to a query about Japan. Despite China's massive growth, Green added that the size of Osaka's regional economy is larger than that of China's. David Jackson of Istithmar agreed with Green′s assessment that Japan is a supertanker but added that supertankers are not nimble and that Japan's banks are still not competitive.

Other factors reshaping the global markets landscape are the weaker dollar and the increasing infrastructure needs of the world. As the dollar weakens, panelists noted, Russian, Chinese and other foreign firms will come knocking at America′s door to look for investments. And, they added, America should not respond to foreign investment by erecting protectionist barriers.

Jackson reported that due to years of underinvestment in Middle Eastern infrastructure, opportunities to invest in infrastructural projects in the region are tremendous. In Asia, massive environmental challenges, especially in China, present opportunities to invest in technologies that will help alleviate the deleterious effects of rapid economic growth. Investing in solutions to mitigating water pollution is also an opportunity, but there does exist the potential for governments to dampen returns.

There was wide disagreement among the panelists about where to avoid investing, but panelist′s views tended to fall in line with the exposure of their firms. Green noted that "private equity bridge" products might also be avoided.

  7:55 AM - 9:10 AM

Toward Energy Independence: A Report of the Strategic Action Volunteer Effort (SAVE)

Speakers:
G. Chris Andersen , Founder and Partner, G.C. Andersen Partners LLC
Richard Hamilton , CEO, Ceres Inc.
Robert Kelly , Founding Partner, DKRW Energy LLC
Arnold Leitner , CEO and President, SkyFuel Inc.
Joseph Pettus , Senior Vice President, Fuel and Energy, Safeway Inc.
Richard Pietrafesa Jr. , Managing Director, Destiny USA
Richard Sandor , Chairman and CEO, Chicago Climate Exchange Inc.; Senior Fellow, Milken Institute
Daniel Weiss , Co-Founder and Managing Partner, Angeleno Group (AG)

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

Moderator and SAVE executive director Joel Kurtzman set the theme of this session, the lessening of U.S. dependence on oil and an examination of the environmental issues associated with oil.

SAVE, he explained, was launched by Michael Milken in 2006 as a result of the Institute's first Financial Innovations Lab, which sought to address the issue of energy independence in the transportation sector. This first SAVE project was a collaborative effort of experts in finance, energy, research, infrastructure and the environment. One of SAVE's goals is to design mechanisms to provide capital to those who provide inventive technologies.

Kurtzman simplified the oil issue to one of addressing the spread in the price of oil versus the cost of oil. Eliminating all subsidies and adding all the externalities, he said, the price of oil should be around $10 per gallon, of which 30 cents comes from environmental costs. This cost, which amounts to $34 billion per year, should be invested in alternate energy.

Kurtzman credited Richard Sandor, chairman of the Chicago Climate Exchange, for developing financial tools to solve the CO2 emissions and acid rain problems in the 1970s and 1980s. Sandor agreed that we should monetize the spread. Air and water, he said, are no longer free. The use of oil, he added, gives rise to one positive output (energy) and more negatively priced goods: greenhouse gases (CO2, NOx, SOx, Hg); particulates, etc., which have adverse health effects; and global warming.

Sandor posed several questions: How do you price such a commodity so that everyone optimizes and uses it? How do you invent a secondary good, such as "the right to emit," which can be traded? Coal and oil are not necessarily bad, he noted. Prices of energy from these sources after abatement are between $20-30 per megawatt hour versus $50 per megawatt hour for natural gas. His goal is to redirect the attention from "ugly" or "costly" fuels and to focus and capture instead their externalities, thereby creating maximum positive environmental and social benefits.

G. Chris Andersen, co-chairman of SAVE, echoed Sandor's remarks and suggested that we pay attention to those with experience in alternative fuel solutions and tap into their expertise. Business leaders and policy makers should look at what the world badly needs, he said, and find creative ways to finance and mobilize capital.

Richard Hamilton of Ceres focused his attention to biofuels, specifically the feedstock for biofuels. He pointed to the run-up in corn prices that resulted from diverting corn to ethanol production. Corn is not sustainable as a feedstock for ethanol, he stated, and we should be using biotechnology to refine cellulose. He shared a quote from Steven E. Koonin, chief scientist of British Petroleum, "It's the cellulose, stupid." Using such biomass as grass miscanthus, he said, a 10-year contract on 100 million acres could yield 20.9 billion barrels of oil, an amount equivalent to the proven reserves of Exxon Mobil.

Bob Kelley of DKRW Energy LLC, a firm in the business of converting coal to liquids, explained that there is enormous opportunity in clean coal. Rather than address the effluents, his firm addresses stripping the greenhouse gases (GHG) and mercury in the raw materials before they are processed. Andersen concurred that this coal-to-liquid process is competitive. And Kurtzman added that externalities, such as polluted ports and energy spent on transporting fuel from the Middle East, should also be priced in when making comparisons. He brought up a PowerPoint slide showing that GHG emissions from fuel derived from coal-to-liquid after sequestering were better than GHG from petroleum.

Arnold Leitner of Skyfuel explained that solar power is competitive to coal when one takes into account the cost of carbon sequestration. He emphasized that the source of solar power is infinite, and that wind and hydro are derivatives of solar energy. An acre of soybeans may yield 60 gallons of clean-burning biodiesel, but solar installed on the same acre yields 500 times more fuel, the equivalent to 30,000 gallons per acre, he said.

Storing energy in the form of heat can solve the storage problem, said Lietner. Parabolic concentrators are well suited for generating heat, which can be used to produce steam, which in turn can be used to produce electricity. Advancements in concentrator technology include the use of lenses to focus the light, parallel mirrors that track the sun and concentrate the energy and other power management processes.

Joe Pettis of Safeway said that his company's headquarters are now powered wholly by renewable energy (100 percent wind) and that Safeway was recently awarded a utility license to tap into alternative technologies, such as concentrators, to produce energy.

Richard Pietrafesa Jr. of Destiny USA talked about his firm's project in upstate New York. Destiny, he said, can transform the ecosystem of an environmentally challenged community into a sustainable 100 percent climate-positive green community by using taxes as sources of capital. The company's success in converting a brownfield to a greenfield should be a testament for others, he added.

Dan Weiss of Angeleno Group addressed the role of investors in bringing alternative energy to the mainstream. Only a small fraction of more than $3.5 trillion of investable capital went into clean technology last year, he said, though he expects tremendous opportunities in this area as capital flow increases.

  9:20 am - 10:35 am

Financial Innovations: Is the Great Wave Subsiding?

Speakers:
Richard d'Albert , Managing Director and Global Head of Securitized Products Group & CDO Group, Deutsche Bank
Michael Milken , Chairman, Milken Institute; Chairman, FasterCures / The Center for Accelerating Medical Solutions
Lewis Ranieri , Founder, Hyperion Private Equity Funds; Chairman, CEO and President, Ranieri & Co. Inc.
Richard Sandor , Chairman and CEO, Chicago Climate Exchange Inc.; Senior Fellow, Milken Institute

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

Most of the securities issued in public offerings today did not exist before 1974. The spectrum of capital structure, from debt to equity, has merged in recent years with the explosion of financial innovations and products. These innovations have had a profound influence on the world economy - and important consequences for the management of risk for societies and political systems. Understanding how these complex capital structures affect the way companies and individuals can raise capital in larger amounts and at lower cost is critical to overcoming growth challenges throughout the world. There is still a striking lack of diversification and a huge amount of un-hedged risks in the world. In past sessions, our panelists have warned against "running victory laps prematurely" in celebrating the financial revolution of the last quarter of the 20th century. This year's panelists will answer the question: Is the great wave of financial innovation subsiding in the 21st century at a time when it is needed most? What are the sources and content of financial innovation now and for the coming year?

  9:20 AM - 10:35 am

Creating Vibrant Regional Economies: What Makes Some Places Thrive While Others Struggle?

Speakers:
Edward Holmes , Executive Deputy Chairman for Translational and Clinical Sciences, Biomedical Research Council; Chairman, National Medical Research Council (Singapore)
Robert McMahan , Senior Advisor to the Governor for Science and Technology, North Carolina; Executive Director, North Carolina Board of Science and Technology
Laura Miller , Mayor, Dallas, Texas
Heather Munroe-Blum , Principal, Vice-Chancellor, and Professor of Medicine, McGill University

Moderator:
Ross DeVol , Executive Director, Economic Research, Milken Institute

A story in The Wall Street Journal recently asked, "Why isn't Philadelphia Boston?" In other words, how do two cities with such similar history and geography end up so different -- one a thriving high-tech powerhouse and the other a struggling urban center? What do Singapore, London and Shanghai -- all successful 21st century economies -- have that other regions don't? Why is Florida putting so much money into building up its life sciences while Nevada bets on growth? What's the answer to creating vibrant regional economies? Is it having leading research universities? Technology clusters? A vibrant cultural life that draws creative workers to an area? What are successful regions doing that might be replicated elsewhere?

  9:20 AM - 10:35 AM

Diaspora Investing

Speakers:
Frederic Brenner , Davos Fellow, World Economic Forum
Dunson Cheng , Chairman and President, Cathay Bank
Al Eisaian , Chairman, Co-Founder, President and CEO, Integrien Corporation
Umair Khan , Chairman, Folio3
José de Jesús Legaspi , Owner and President, The Legaspi Company

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

According to the United Nations, more than 282 million people on the planet live in diaspora communities. Remittances are now the largest form of capital flows into some countries -- surpassing foreign aid, portfolio investment and foreign direct investment. Diaspora Investing.

Jose de Jesus Legaspi of The Legaspi Company started the panel discussion by saying that diaspora investing contributes to growth of human capital and foreign direct investment. His work is mostly with Mexico, where U.S. remittances of $23 billion overtook oil income in 2006.

The Armenian experience has been just as remarkable, said Al Eisaian of Integrien Corporation, adding that Armenia has benefited from diaspora investing in the technology sector especially; a reported US$10 billion of diaspora support has gone to Armenia since its independence in 1991. The percentage of Armenia's national treasury coming from remittances stands at 10 percent.

Moving onto other subjects, Frederic Brenner of the World Economic Forum intervened to illustrate the human aspect of diasporas. The diaspora is more than mere numbers, but also identities, people, acculturation, and deep fear. "I see diaspora as a true method of fertilizing, of cross-fertilizing," he said., augmenting the point with slides taken in 45 countries where he documented how Jewish diaspora groups live and work.

In Pakistan, said Umair Khan of Folio3, he has found that entrepreneurial investments coming from diasporas are far more impactful than donations. He also added that another important activity associated to diaspora groups is how they serve as "ambassadors" for their countries of origin by showing the true face of their nations internationally.

Dunson Cheng of Cathay Bank explained that as of 2005, China had received an estimate of US$622 billion diaspora investing (coming mainly from Hong Kong, Taiwan and Singapore). For China and other countries, he said, an important factor is that diaspora groups are returning to their home countries. This phenomenon grew in Taiwan in the 1980s and 1990s, and brought the human capital that fueled to a great extent the growth of the semiconductor and computer industries there. The preceding is so important, said Morse, that the Chinese government believes that the country′s growth will hinge on educated Chinese diaspora returning.

Diaspora investors have a better knowledge than most other investors of the risks of investing in their home countries, said Kahn, adding that American investors are wise to partner with diaspora members who will help them to understand and navigate the landscape of the targeted countries.

  9:20 am - 10:35 am

Market Returns from Sustainable Development: Global Development Bonds

Speakers:
Reid Detchon , Executive Director, Energy and Climate, U.N. Foundation; Executive Director, Energy Future Coalition
Michael Eckhart , President, American Council on Renewable Energy
Michael Lucente , Managing Director, Head of Structured Finance, Emerging Markets, Merrill Lynch

Moderator:
John Simon , Executive Vice President, Overseas Private Investment Corporation

The International Energy Agency estimates that it will cost $16 trillion to build sufficient infrastructure to supply the world's energy needs between now and 2030, about $533 billion a year. In four other sectors - electric power, water, transportation and telecom - annual infrastructure estimates range from $434 billion to $610 billion a year. That's somewhere between $124 billion and $300 billion below what is expected to be available. Where will the money come from? A potential new investment security - the Global Development Bond - would marry private capital with public agency and philanthropic credit enhancement. This innovative product would apply proven financial technologies to a new market, enabling institutional investors to support significant sustainable development in emerging markets and earn an attractive return on their money.

  10:45 AM - 12:00 pm

Real Estate and Private Equity

Speakers:
Steven Kantor , Managing Director, Head of Leveraged Finance, Real Estate and Private Placements, Credit Suisse
Mark Karlan , Executive Managing Director, CB Richard Ellis Investors
Thomas Shapiro , Founder and President, GoldenTree InSite Partners
Barry Sternlicht , Chairman and CEO, Starwood Capital Group

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

With market fundamentals on the upswing and the world's largest private-equity buyout now completed, will more private equity find its way into real estate markets? Are these deals likely to be quick flips back into the public markets or are there sound reasons to stay private? There is a great deal of liquidity sloshing around looking for an investment. While the residential markets are correcting, most nonresidential markets seem solid. Travel and tourism, and most importantly, the foreign market, are back to pre-9/11 levels, which has boosted valuations. The commercial sector is seeing high absorption rates and vacancy rates fall. But will a herd investment mentality encouraged by investment banking deal-flow result in another property-market bubble? Or, will sound prospective returns warrant more deals?

  10:45 am - 12:00 pm

Carbon Trading

Speakers:
Bruce Braine , Vice President for Strategic Policy Analysis, American Electric Power Service
Daniel Braun , Director of Global Environmental Finance, Stark Investments
Neil Eckert , Chief Executive of Climate Exchange Plc.
Joseph Pettus , Senior Vice President, Fuel and Energy, Safeway Inc.

Moderator:
Richard Sandor , Chairman and CEO, Chicago Climate Exchange Inc.; Senior Fellow, Milken Institute

One of the most significant developments in environmental policy is the emergence of flexible, market-based instruments that permit sources to meet abatement goals at minimum cost. A key feature of the approach is the marketable allowance, which creates a market in rights to emit pollutants - and in the process creates incentives to use the most efficient controls. The most successful case of emissions rights trading is the acid rain program, wherein sulfur dioxide is capped and traded among polluting entities. This model is currently being applied in combating climate change. The Kyoto Protocol, which allows a carbon cap-and-trade program as one of its flexible mechanisms for compliance, has brought about different trading schemes here and abroad. In Europe, for example, more than 1 billion tons of carbon dioxide was traded at a value of more than 18 billion euros ($23 billion) in 2006 alone. This roundtable discussion will look at the future of carbon trading. How much will it be worth? Where are the new markets? How long is it going to last? Who will be the major players?

  10:45 am - 12:00 pm

Opportunities in the Egyptian Capital Markets

Speakers:
Mahmoud Mohieldin , Minister of Investment, the Arab Republic of Egypt
Aladdin Saba , Chairman and Founder, Beltone Financial
Hani Sarie-El Din , Chairman, Capital Market Authority, Egypt
Mohamed Taymour , Chairman, Egyptian Capital Market Association

Moderator:
Nabil Fahmy , Ambassador, Arab Republic of Egypt to the United States

Egypt is the most-populous nation in the Middle East and has one of the region's largest economies. Egypt's capital markets have matured over the past 30 years, and the Cairo and Alexandria Stock Exchange (CASE) has been among the best-performing markets in the region over the past several years. Increasing foreign investment and the return of Egyptian nationals to work and invest are just two reasons for this growth. This panel will discuss investment opportunities in Egyptian capital markets.

  10:45 am - 12:00 pm

Public/Private Partnerships: Innovation in Medical Research

Speakers:
Russell Bromley , Chief Operating Officer, Myelin Repair Foundation
Kathy Giusti , President and CEO, Multiple Myeloma Research Foundation
James Greenwood , President and CEO, Biotechnology Industry Organization
James Heywood , CEO and d'Arbeloff Founding Director, ALS Therapy Development Foundation

Moderator:
Deborah Brooks , President and Co-Founder, Michael J. Fox Foundation for Parkinson's Research

Drug development is not just for the big pharmaceutical companies any more. Some of the most innovative work in drug development is being done where you least expect it - nonprofit disease research groups. Often spending as much as a small biotech startup, these organizations are creating innovative research collaborations with industry, new methods of sharing data and using a business-model approach to accelerate new breakthroughs in disease research. This panel will profile some of the organizations leading this trend and highlight the benefits of these new industry/non-profit collaborations.

  2:10 pm - 3:25 pm

India: The Next Global Growth Engine?

Speakers:
Sabeer Bhatia , CEO, NAVIN Communications Inc.
Ashank Desai , Founder and Chairman, Mastek
Edmund Olivier , Founding General Partner, Oxford Bioscience Partners
Joseph Sigelman , Co-Founder, OfficeTiger LLC

Moderator:
Bachi Karkaria , Consulting Editor and Columnist, The Times of India

India, the world's most populous democracy and one of its most culturally diverse nations, has achieved rapid economic growth in the last decade. A booming I.T. industry, global outsourcing industries and cinematic success in "Bollywood" all contribute to impressive GDP growth - 6 percent to 7 percent a year since the 1990s - and set the nation up as the next global growth engine. Its stable political system, well-established legal framework and efficient domestic capital markets also provide a sound foundation for more foreign investment. However, as an emerging market, India faces many obstacles, including inadequate infrastructure investments in transportation, the power supply, water, sewage and ports. And the central, state and local governments do not always speak with the same voice on developmental issues. Will these factors prove to be stumbling blocks along India's path of development? What role will India play in the world economy 10 to 15 years from now? What will India do to address issues of inequality, poverty, and environmental sustainability?

  2:10 PM - 3:25 PM

Intellectual Property and Intangible Assets: Growth of a New Asset Class

Speakers:
Kimberly Klein Cauthorn , Director, Kroll
Roxanne Christ , Partner, Latham & Watkins LLP
Nir Kossovsky , CEO, TOPCAP
James Malackowski , President and CEO, Ocean Tomo LLC
David Ruder , Venture Partner, Altitude Capital Partners

Moderator:
Brian Sullivan , Anchor, Bloomberg Television

With intangible assets comprising upwards of 80 percent of the market capitalization of traded companies, the value of intellectual properties and other intangibles in the 21st century economy is indisputable. Companies and investors are rapidly coming to understand how the convergence of human capital and intellectual assets are their greatest source of both strategic risk and financial reward. In this session, we will survey recent advances in intangible asset finance. How are intellectual property (IP) assets defined, valued, owned and protected? How should companies manage these assets to optimize value? What new opportunities have emerged from the convergence of capital and insurance markets for intellectual-asset finance? Which financial innovations can promote greater liquidity and monetization of intellectual assets? How has the post-Sarbanes Oxley regulatory environment affected intangible asset value and management? How do the answers to these questions vary across IP-intense industries - technology, medicine, fashion, entertainment and environmental industries?

  2:10 PM - 3:25 PM

Smaller Businesses in a Flat World

Speakers:
Graham Clempson , European Managing Partner, MidOcean Partners UK
David Kim , CEO, Baja Fresh
Loida Lewis , Chairman and CEO, TLC Beatrice LLC
Matthew McGovern , Managing Director, SBI Group
Eran Salu , Owner, Publisher and CEO, Business Leader Media

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

Rafael Pastor of Vistage International opened the small-business panel with encouraging data for business owners both in the United States and abroad. "If you look at 1998 to 2003, a five-year span," he said, "the barriers to entrepreneurship in virtually every country, developed and developing, have gone down significantly. The world as a whole has become far more hospitable to business, capitalism and entrepreneurship." But more relevant to local owners, he noted, "The number of small and medium-sized businesses in the United States that have exported has quadrupled in a 10-year span, 1994 to 2004." All very promising information for those interested in expanding their borders.

The panelists presented a wealth of experience, ranging leading small businesses to large organizations. Each is currently involved in overseas operations to some capacity.

Loida Lewis of TLC Beatrice, shared the story of how her husband once owned and operated the largest LGO outside the United States. When he died in the early 1990s, the organization fell upon hard times, Lewis, who lacked formal training in business, assumed the position of CEO and was able to prevent the demise of the company. "I reduced expenses by 70 percent," she said. "All the companies that were not doing well I sold. I reduced our corporate office by half and saw the revenue start to go up -- one million the first year, five million the next year etc." By 1997, she was faced with the decision to either sell the entire company or liquidate, and opted to liquidate parts of the organization in Spain, the Canary Islands, Italy and elsewhere in Europe. Currently she oversees 110 convenience stores in China, a venture she considers to be much more challenging than running a large organization due to the one-to-one interaction with staff and customers.

"Basically, what we do is we buy distressed companies in the U.S., ranging between 50 million to a billion," said David Kim of Baja Fresh. "We actually own and manage these companies."

His company is currently taking its retail and commercial brands to overseas markets, but he urged business owners to be very cautious and prudent when considering international involvement, particularly due to various political systems, laws and corruption. He suggested partnering with others who are more familiar and experienced in foreign market environments.

As the managing director of SBI Group, Matthew McGovern discussed how his company is currently investing heavily in public markets particularly in Japan, Hong Kong and Singapore. And Graham Clempson of Mid Ocean Partners in the UK described his company as a private equity business focused on small to medium-sized companies. "We're looking for businesses ideally where we can take ideas and transfer them into either Europe or take them into the States," he said, "or visa versa."

Eran Salu of Business Leader Media described his company as a small magazine publishing company with 60 percent of its business in India. Contrary to the apprehensive attitude taken by some when considering going overseas, he described his experiences as being a "pleasant surprise," particularly when it came to attracting, hiring and retaining staff. The key for him was hiring a well-trained, qualified local to start up and manage the business. Another contributor to the company's success was paying his employees 10 percent to 15 percent above market, which was still significantly less than what would be paid in the States. He offered three tips to those considering overseas ventures: always pay over market, don′t try to "Americanize the business" and avoid the "hot" cities.

  3:35 PM - 4:50 PM

Israel: Confessions of an Economic Growth Engine

Speakers:
Doron Almog , Co-Chairman, Athlone Global Security
Joseph Bachar , Director General, Israel Tax Authority, Ministry of Finance
Orna Berry , Chairperson, Israel Venture Association; Venture Partner, Gemini Israel Funds
Raphael Hofstein , President and CEO, Hadasit Ltd.
Joe Zuback , Chief Technology Officer, Senior Vice President, Siemens Water Technologies

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

Beyond the headlines, the results of economic and financial reform in the wake of last summer's second Lebanese War have been remarkable in Israel: 4.5 percent economic growth in 2006 (8 percent for the final quarter), unprecedented foreign direct investment of $13.4 billion, historical stock market highs, dramatically low interest rates, a budget deficit of less than 1 percent of GDP and the remarkable achievement of becoming a net-creditor to the world. Israel's pioneering work in high technology, the Internet, clean technology, security, biotechnology and agriculture drive growth at home and beyond. Economic growth, however, has been uneven. Israel has the highest poverty rate among western developed countries (24.4 percent), persistent unemployment (8.4 percent) and growing regional and income polarization. Panelists will explore lessons learned in becoming a competitive entrepreneurial force for new technologies and the challenges of transferring these lessons to Israel's vision and hope as a nation and as a leader in the global economy.


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