The Milken Institute may be based in Santa Monica, but it will soon have a very prominent outpost in Washington — and a swanky club along with it, catering to the very clientele that attends its tony annual conference.
Milken is planning something it calls the “Center for the American Dream,” a museum and conference center devoted to free enterprise, that will be located in an historic bank building that the Institute owns located directly across from the Treasury Department on Pennsylvania Avenue in Washington D.C. The tenant for the top five floors will be an exclusive retreat called Ned’s Club, run by the UK’s Soho House & Co. and the Sydell Group of New York, along with California venture capitalist Ron Burkle.
Right before the last lunch panel of the conference, Michael Milken sat down on stage with Gareth Banner, managing director of the new venue, which will open in 2020. It’s modeled on another club in an old bank in London called The Ned, and will have “a rooftop of premium space where members can eat, sleep, and even hold private events” with interior decor “designed to channel the glamour of the 1920s,” Banner said.
That will make it even more exclusive than other expensive-but-still-accessible hotels in the neighborhood, including the W, the Willard InterContinental, and the President’s own Trump Hotel.
After several minutes of talking up the new museum and its attached club, Milken referred the thousands of well-heeled attendees to the lobby, where there stood an array of posters with renderings of the interior and booklets on thick card stock.
The pricing of an annual membership, however, was unavailable.
It’s no secret that quarterly reports have contributed to a focus on short-term corporate goals, sometimes to the detriment of a company’s long-term health. The same is true of investment funds. And some of the world’s biggest pension funds would like to just … not talk about them.
Hiromichi Mizuno runs Japan’s Government Pension Investment Fund, the $1.4 trillion system that’s entrusted with the retirement security of 100 million Japanese people. It’s so big that it lost $138 billion in a quarter and didn’t bat an eye. But Mizuno thinks that level of transparency just isn’t that useful.
“If someone kept an eye on quarterly reporting they would understand that quarterly reporting doesn’t mean much for long term performance,” he said on a panel Wednesday morning. Plus, Mizuno said, they would only get press attention when the fund lost money, creating the impression in the public that the fund was in much worse shape than it was. Although they still report quarterly results, they just stopped having press conferences.
“Why don’t we owners make a joint statement: We don’t want quarterly reporting,” he said. “People can’t stop it, because they have transparency, accountability, those kinds of things. But if any of us is advocating long-term investment, we should say something about the short term pressure on corporate executives. We need to break the chain.”
Mizuno isn’t alone in that opinion. President Donald Trump has asked the Securities and Exchange Commission to consider the idea of requiring companies to report less frequently.
Mizuno’s co-panelists didn’t go that far — investors like to know as much as possible about the companies they own, after all. But they definitely de-emphasize their own quarterly returns.
“I never provide a quarterly number,” said Kim Lew, chief operating officer of the Carnegie Corporation of New York, which manages about $3.5 billion. “If someone asks me, I’ll say, ‘you know we’re long term investors. What happens in the short term is not important.’ I only present the 10-year number. If they don’t get it, they can’t ask about it.”
Populism is on the rise. Brexit will weaken both the European Union and the United Kingdom. You think Europe has a migrant crisis now? “You ain’t seen nothing yet,” said Niall Ferguson, senior fellow at Stanford’s Hoover Institution.
Europe’s prognosis is pretty bleak, according to (admittedly pessimistic) participants of a Wednesday panel on the future of the continent.
“We’re also underestimating, when we talk about European institutions, how much [that] is a threat to them.” He argues that it will be hard to make the case to French and German citizens to “share sovereignty with a dictator.”
On top of that, according to Richard Haass, president of the Council on Foreign Relations, it will be difficult to repair relations between Europe and the United States, which have deteriorated under President Donald Trump.
“It’s difficult to me to see how Europe is a central partner of the United States in contending” with challenges posed by China, Haass said, noting that Asian allies will likely become more important partners. “I just don’t see it happening.”
But a US-European alliance is essential, said Peter Beyer, member of the German Bundestag and coordinator of Transantlantic cooperation in the German Foreign Office. The two regions need each other to prosper, he said.
One bright spot? France and its president, Emmanuel Macron. Ferguson said that French stocks have outperformed US and UK stocks since early this year, and that Macron has a clear sense of what needs to be done to put Europe on the right track.
On Wednesday morning, five of the most powerful executives in sports business were asked to talk about the tech gizmos they’re developing to keep fans coming back to their stadiums, TV programming, and video games. Here are a few.
Private equity funds haven’t had a good public reputation in recent years, given their habit of buying companies, loading them up with debt, and often laying off thousands in the name of “synergy.” Sears and Toys ‘R’ Us are just the most recent examples.
People who work in the industry know they’re not popular, and say they’re trying to at least seem less rapacious.
At a panel about mergers and acquisitions, EY’s head of transaction advisory services Steve Krouskos said that companies are focusing on how mergers will help the company expand rather than simply gain efficiencies.
The panelists agreed that ultimately that’s a better approach both for the bottom line and public perception.
That’s probably a good thing, given the growing role that private equity is playing in the capital markets, as companies wait longer to go public if they ever do at all.
“Whether or not [private equity shops are] good stewards of capital, it’s a fait accompli that they are going to grow as a percentage of the pie,” said Jason Greenberg, managing director of the investment banking firm Jefferies. “The amount of capital sitting as dry powder is at an all-time record high. For better or worse, these funds have five or six years to spend a lot of capital.”
The Milken Conference is certainly no paragon of gender equality, with most panels heavily skewed towards men, and suits far outnumbering skirts in the audience.
But at least it’s made more progress than the Middle East, right?
But some of the region’s largest financiers and diplomats argue that they don’t have a problem.
On her panel about investment in the region — which featured entirely male speakers — CNBC’s Hadley Gamble asked, “Where are all the women?” The response was vehemently defensive.
“We are very proud of what we have achieved so far,” said Ibrahim Saad Almojel, director general of the Saudi Arabia Industrial Development Fund, a state-owned financial institution. From a base of zero, he said, half of the fund’s hires have been women since the beginning of 2018, including a female Vice President of strategy and business development.
Likewise, the United Arab Emirates’ Ambassador to the United States Yousef Al Otaiba emphasized that a third of his country’s cabinet members, the vast majority of college graduates, and a third of members of Parliament were women. “I don’t think of this as an issue at all,” he said. Even if the current panel was all-male, he joked, that might be because “men are more eager to visit LA than women.”
Finally, Bahrain Economic Development Board chief Khalid Al Rumaihi said that his agency is working to institute a paternity leave policy to help women continue their careers after having children. “If you’re hiring on competence, you are going to hire more women than men,” he said. “In terms of women, I don’t think we have any issues.”
One wonders whether women in their countries would say the same thing.
As the Milken conference stretched into its third afternoon on Tuesday, the country most on everyone’s minds seemed to be China. Indeed, US Treasury Secretary Steven Mnuchin canceled a scheduled appearance so he could conduct another round of trade talks in Beijing.
With rhetoric between the two countries often running hot, the question for everyone else becomes: Do we need to align one way or the other?
Yousef Al Otaiba, the ambassador of the United Arab Emirates to the US, said his country wasn’t interested in doing that.
The UAE had just inked $3.4 billion worth of investment deals with China over the weekend during the larger country’s Belt and Road Initiative summit, and China is a key export market for the UAE’s agricultural and marine projects. Prime Minister Sheikh Mohammed bin Rashid al Maktoum tweeted that his country would be a “vital station on the new Silk Road.”
It’s Al Otaiba’s job to smooth that over in Washington.
“I’m trying to get our colleagues to understand we want to do business with the United States, but we also want to do business with China,” he said. “This is going to become an increasingly difficult conversation.”
“As the US and China increasingly look at each other as competitors, do not make us choose sides,” he finished. “We don’t want to choose sides, we want to work with everyone, because it’s in our national interest.”
If the United States wants Americans to have food in the future, in needs to reduce food waste and invest in agriculture tech.
That’s what Stephen Censky, deputy secretary of the US Department of Agriculture, said during a panel called “Ag Tech: Food security as national security,” on Tuesday afternoon.
Food tech will help increase productivity, which is crucial, he said. He said it runs the gamut from sensors that can tell when a crop needs more water to gene editing that can prevent disease in animals.
Fellow panelist Devry Boughner Vorwerk, chief communications officer and head of global corporate affairs at Cargill, shared a surprising way that her company fights waste: Listening to shrimp eat.
You can hear when the shrimp are done eating, and stop feeding them accordingly — rather than simply guessing how much they consume, she explained. That prevents waste and lowers costs, she explained.
On Monday afternoon, about three dozen Milken conference attendees swapped out their regular suits for wetsuits to participate in a “human performance workshop” at the Beverly Hilton’s outdoor pool.
Led by human performance expert Andy Walshe, the exercise was a departure from the other Milken events — mostly panels, with a few yoga and meditation sessions (and, I should add, puppy parties).
Walshe was the performance manager for Red Bull Stratos, the energy drink’s space diving project. He helped skydiver Felix Baumgartner jump from the edge of space in a breathtaking 2012 stunt. On Monday, the task was less daunting: The goal was to hold your breath underwater for, perhaps, a bit longer than you thought you could.
Before instructing the crowd to change into wetsuits, Walshe guided them through some breathing exercises and told listeners not to think of the activity as a competition. The idea was to remain calm, push beyond your fear, and focus.
Participants buddied up, changed and hopped in the pool. After a series of breathing exercises, one participant would go into a dead-man’s float, while still maintaining physical contact with their partners, and communicating their well being through hand signals. Participants repeated the sequence, trying to increase their time spent underwater.
Maggie Chen, who works for Junson Capital, had heard about this type of exercise before she saw Walshe’s session in the Milken program, so she decided to check it out. “I just wanted to see it for myself,” she said.
“I was a bit nervous in the beginning,” she said. But once she put her head in the water, she just focused on counting and controlling her breathing. For Chen, the experience was something like skiing. “You control your speed, you try not to get off track.”
For John Parker, founder and principal at Springhood, the appeal was similar. “I like trying new things,” he said. Plus, by Monday afternoon, he was ready for something different. And the session got people talking — which can be rare at such a massive conference, he said.
Parker was disappointed that he didn’t get to try to hold his breath himself. The session ran out of time before half of the participants had their turns, and just as happy hour attendees started sipping drinks and sampling canapés under heated lamps surrounding the pool.
We’ve concluded our Milken coverage for today, but check back here tomorrow to follow Wednesday’s discussions and events.
We’re looking forward to a discussion about the American dream with hedge fund billionaire Ray Dalio and learning about the Final Frontier XPrize CEO Peter Diamandis.
On a panel about international investment and trade, former Rep. Eric Cantor — who was swept out of office four years ago on a wave of tea party anger and then became an investment banker — did not seem worried about rising protectionism.
“You hear this president rattling off about the potential for tariffs in Europe, but you don’t see the imposition of those,” he said. “You have to separate the rhetoric and the politics from what’s actually happening.”
He wasn’t the only one with that feeling. Ian McKay, the CEO of Invest in Canada, even expressed confidence that the United States would re-enter the Trans-Pacific Partnership. That’s the enormous trade deal negotiated by Barack Obama that President Trump pulled out of almost immediately after taking office, and which the 11 remaining countries have picked up and carried on without the United States.
But the actual administration representative, Treasury’s acting under secretary for international affairs Heath Tarbert, poured cold water on that idea.
“I am not aware that that is on the agenda for the US,” Tarbert said. “It could be sometime, but given where we are, we finished an agreement with South Korea and just started negotiations with Japan, so that’s where we’re headed in the next couple of years.”
Of course, the deals the White House is negotiating with other countries — such as the yet-to-be-ratified US-Mexico Trade Agreement — look very much like TPP, with chapters on issues like intellectual property protection and digital trade. But Trump has stated his preference for bilateral deals over multi-country ones, so the United States stays out for now.
“There’s this terrible fiction that you must go to college to be successful,” said Commerce Secretary Wilbur Ross in a Tuesday panel about the American workforce. Ross said that about 40% of college graduates work in jobs that don’t require a secondary degree.
“The tragic truth is the American educational system is failing the young people,” he added.
Ross’ comments will be familiar to anyone who listened to Ivanka Trump speak on Monday.
“Education and learning generally needs to be rebranded,” Trump said. “This idea that to achieve the American dream you need a 4-year degree is so steeped in American education that it’s taking people off very viable career pathways.”
As my colleague Lydia DePillis noted, workforce development advocates generally agree the administration’s goal is a fine one. But they have voiced concern that White House budgets have so far proposed reducing the total amount of federal funding that goes into workforce development.
Ross was joined on the panel by Bernard Harris, Jr., CEO of the National Math and Science Initiative, Barbara Humpton, CEO of Siemens USA, and Jonathan Sokoloff, a managing partner with Leonard Green & Partners, L.P., who discussed how to get the most out of the American workforce.
The panelists talked about elevating science, math, technology and engineering education in order to make sure that people’s skills match job needs. Sokoloff noted that companies can offer attractive perks to try to keep workers from jumping ship.
One thing that could help attract talent is opening the door to immigrants, moderator Gerard Baker, Wall Street Journal editor-at-large, said to Ross.
The “administration is not against immigration,” Ross said. “It’s for lawful immigration, and especially for lawful immigration of people who have skill sets.” Ross said the administration is looking for immigrants to earn entry into this country by merit. It’s “much more sensible to … have a rating system of some sort.”
Political operatives Karl Rove and Jim Messina joined Neera Tanden, president and CEO of the Center for American Progress, and Mark Penn, president and managing partner of the Stagwell Group in a conversation about the “known unknowns of election 2020.”
The panelists, led by Willow Bay, dean of the USC Annenberg School for Communication and Journalism, spoke for an hour about how the 2020 election could shake out.
They chatted about:
You can watch the colorful conversation below.
Antibiotics-resistant viruses are a major global health problem: Drug-resistant diseases cause at least 700,000 deaths a year, including 230,000 deaths from multidrug-resistant tuberculosis, according to a recent UN report. If something isn’t done, as many as 10 million people may die annually by 2030 as a result of drug-resistant diseases, the repot said.
One group trying to find a solution? The Pentagon’s high-tech research agency, which has laid the groundwork for some essential tech innovations, like the internet.
“This is a national security priority for us,” said Matthew Hepburn, program manager of the biological technologies office at the Defense Advanced Research Projects Agency, or DARPA. Soldiers are deployed all over the world, and are exposed to a number of different superbugs like antibiotic-resilient Malaria.
Hepburn, speaking on a Milken panel about outsmarting superbugs, said the Obama administration made the fight against drug-resistant disease a priority.
DARPA is known for thinking outside the box — the group has conducted research into the paranormal, for example — and is doing so on superbugs.
“When we’re at our best, we’re the ones who say, ‘Let’s try to think about this problem completely differently,’” Hepburn said. One “litmus test” is when experts are laughing at DARPA’s ideas — that’s when Hepburn knows DARPA is on the right track.
DARPA is exploring why animals that spread diseases, like bats, aren’t killed by them. “It’s a discovery program,” he said. “We don’t want animal models that replicate humans,” like traditional medical research does. “We want animal models that do the exact opposite.”
He noted that at this point, there’s no clear path to turn the research into commercially viable drugs. It’s “still a work in progress,” he said.
American economic inequality in investing and retirement is often overlooked. But it’s very much on the minds of the world’s biggest asset managers.
Two trends have played into this rich-poor gap: The shift of companies from the public to the private markets, and the decline of defined benefit pension plans in favor of defined-contribution 401(k) plans.
Cyrus Taraporevala, CEO of State Street Global Advisors, noted Tuesday that the number of public companies has been cut in half since 1999. Equity in private companies is generally accessible only to high-net-worth individuals.
“We really worry about the decline of public companies as the de-democratization of investing,” Taraporevala said. “This is a major societal issue.”
Pension funds, which support the financial interests of workers, can invest in private companies. And investments in privately-held companies, which don’t have to answer to the short-term benchmarks of the public markets, can offer big returns.
“Where we end up beating our indices on a regular basis is creating value in private companies,” Ron Mock, CEO of the $142 billion Ontario Teachers Retirement Plan.
But pension plans are rare in the United States. Most workers are investing for retirement on their own, and many don’t have the knowledge or the advice to do it wisely. Case in point: The disparity in what institutional and regular investors did with their money after the financial crisis.
“The market went down, and what did the institutional investors do?” said Catherine Keating, CEO of BNY Mellon Wealth Management. “They rebalanced and they bought along with the market. And the typical retail investor doesn’t have that experience, and does the exact opposite.”
What’s the solution? Some panelists said people need to learn more about asset allocation, and especially “de-cumulation” — how to spend down your assets wisely after retirement.
“People are just woefully underprepared,” said Carter Lyons, managing director of Two Sigma. “It’s a shame that individual employees have not demanded defined benefit plans. It’s really only public employees who still have that and still cherish it.”
In a packed main ballroom on Tuesday morning, Michael Milken asked hedge fund billionaire Ken Griffin why more companies grow larger with private capital rather than going public. The answer, as with most things, according to Griffin: Government regulation.
When Milken asked Griffin whether he would ever take Citadel public, however, Griffin had a different explanation for why he probably wouldn’t.
“We’re reaching the point where that’s probably the right thing to do giving the scale of our business,” he continued. “But I really appreciate the flexibility that comes with being privately held. If we go down the wrong path, we can exit that decision in the blink of an eye, and that allows us to be much more successful in the long run.”
He did not mention regulation.
The organizers of the Milken Institute Global Conference are aware that America’s young people are disenchanted with capitalism. But those who’ve benefited most from the current system seem to think there’s not much wrong with it.
That sentiment was on display Tuesday morning during a discussion between Michael Milken, the financier who went to jail in the 1980s for securities fraud, and Ken Griffin, who runs the enormous hedge fund Citadel. Both of them, Griffin noted, grew up during the Cold War.
“It was incredibly clear that our free market system created far better standards of living,” Griffin said. During the 2016 election, he recalled seeing a photo of a stadium full of people cheering for Bernie Sanders, the Vermont senator who was running for the Democratic nomination for president. Griffin thought, “this is an entire stadium of people who don’t know history.”
Griffin laid most problems at the feet of government, including the rising cost of college and the global financial crisis, which he says was fueled by Fannie Mae and Freddie Mac over-inflating the housing market.
“When the US government gets into the business of subsidies, we create economic distortions that can have a very profound negative impact,” Griffin said. “Imagine we take our experiences where the government has been so active, and extrapolate that across the economy.”
Take Obamacare, for instance. “That’s the last other experiment with bigger government, and that has clearly failed millions of Americans, as we have lost our doctors, and lost ready access to healthcare,” Griffin said. “The free market is of course not perfect, but It is extremely good at delivering solutions and products that make peoples’ lives better.”
(A quick counterpoint: There’s plenty of evidence that the rising sticker price of public higher education is due in large part to falling support from state governments; the claim that Fannie and Freddie caused the housing crisis was rejected by the Financial Crisis Inquiry Commission; and the Affordable Care Act has extended coverage to millions of Americans.)
Longtime Milken Conference attendees will tell you that the artificial intelligence panels used to be in small rooms with low attendance. This year, almost every panel touches on it, and one discussion that focused on the ethics of AI occupied the main ballroom stage — with some sharp disagreements over the future it’s leading us into.
The underlying question: After a time period in which many waves of AI innovation displaced workers, only to create whole new industries that employ far more people than the ones they destroyed, is this time different?
Vivienne Ming, a theoretical neuroscientist who runs the think tank Socos Labs, thinks so.
“What we’re envisioning is that people will magically self-realize, just because we have automated their job away, and they will become creative,” she said. “And that is not true. If we don’t invest in creating a society where people are empowered to be different, we will create a system in which people are empowered take care of old people for the rest of their lives, and they will resent it.”
John Kelly, an executive vice president with IBM, responded sharply.
“I totally disagree with that,” Kelly said. “I think there are people who love to take care of old people, and thank god they do. And I think AI will give them tools to take care of our elderly better.”
Pedro Domingos, managing director and head of machine learning research at the D. E. Shaw Group, also downplayed concerns about mass displacement.
“The argument is usually that this time is different because we’re automating intellectual work,” he said. “This time is not that time yet. The time when computers will be as good as humans at all these things, who knows when that will happen, but it’s not here.”
Domingos and Kelly focused on the power of humans in combination with machines, which Ming agreed would always surpass the power of either a human or machine in isolation. But even human-machine pairings raise difficult questions. For example, Ming said, she has developed a device that increases cognitive function in mentally disabled children.
“I’m doing this work for kids with genetic brain injuries. But it will be commercialized. And there will be a cost associated. And parents who pay that cost, their kids will be 20 percent smarter,” she said. “If I turn my son into a cyborg, how will yours possibly compete? Feels like the run up to the financial collapse. You couldn’t not play the game.”
Mick Mulvaney, acting chief of staff for the White House, is worried about the national debt.
“We’re probably not capable of balancing the budget right now,” he told Fox Business’ Maria Bartiromo during a Milken panel on Tuesday.
He’s concerned about what would happen to the United States if it suddenly needs to borrow cash fast — with the debt so high, there’s no guarantee the country will be able to find lenders as readily as it always has, he said.
But he thinks the economy’s in good shape, and that prosperity will keep voters on President Donald Trump’s side during the election.
“People will vote for somebody they don’t like if they think it’s good for them,” Mulvaney said. It’s simple, he argued: If people are better off, they’ll vote Trump. And there’s a good chance that’s the case, because economic “fundamentals continue to be strong,” he said.
“The way you lift people up is by having a healthy economy.”
Mulvaney lauded the administration’s 2017 tax cut as a “fundamental change,” rather than a stimulus. But it’s not clear just what impact the changes will have in the long term.
One thing Mulvaney’s not worried about? Making his title official. “No one really cares about ‘acting,’” he said. “I am the chief of staff, I perform these functions.”
Plus, Mulvaney added, every member of the Trump administration is effectively “acting” anyway. “He could fire anyone,” Mulvaney said. Don’t get him wrong — Mulvaney said he has a good relationship with the president and loves serving at the white house. “It’s a fun place to work.”
Tom Barrack, CEO of the real estate investment firm Colony Capital and longtime friend to President Donald Trump, has some concerns about the tenor of public sentiment lately.
As a developer, he’d like to be able to do more projects in places like Brazil, and it would be helpful if the two continents were better knit together. “You would think that would be an inherent development opportunity, but it can’t be, because you don’t have consistency, the basic things that make developers comfortable in a country,” Barrack said at a Monday afternoon panel.
Of course, Tom Barrack also happens to have chaired Trump’s inaugural committee, and the president has been a huge proponent of that protectionism, of course. Policies like tariffs and immigration restrictions have made developers’ lives more difficult by increasing the cost of materials like lumber and steel as well as the cost of labor, since many of builders rely on Central American immigrants to build their projects.
In keeping with the theme of the conference, Barrack also voiced concern about widening economic inequality, and said Trump hadn’t yet succeeded in fixing it.
When the conversation turned to local zoning regulations, though he didn’t name it specifically, Barrack appeared to reference a piece of the tax overhaul that also hurts development projects: The capping of the state and local tax deduction, which may make communities less willing to ease up on their rules and fees.
“They’re looking at how [to] support their local communities, and where do those revenues come from,” Barrack said. “Today those revenues are near and dear, and our federal government is making it more difficult for them to latch on to their portion of the revenues.”
Barrack wasn’t the only one to lament government policy. The other three big developers on the panel also blamed officials for changing the rules in the middle of development projects and failing to come up with comprehensive plans to encourage the construction of affordable housing.
Jonathan Goldstein, CEO of the privately-held real estate firm Cain International, thinks builders are unfairly blamed for rising housing costs by the public.
