Introduction to the Milken Institute Israel Center

Transcription

1 Introduction to the Milken Institute Israel Center

2 Milken Institute Israel Center Mission To develop and transfer financial innovations to enable economic independence for Israel through capital market development with the goal of establishing Israel in the top 10 global countries in standard of living and income by the end of the first quarter of the 21 st century.

3 Israel s Growth Gap: Inadequate Growth, Shared Unequally Chained at year 2000 US$ At 50% of pre 1973 growth rate Actual

4 Milken Institute Israel Center Objectives: Democratize Israeli Capital: Goal--Israel as a Top Ten Global Economy Accelerate capital market reform job creation and capital formation Advance Israeli economic independence and economic security support regional growth and bridge social gaps Financial innovations for social, educational, infrastructure and environmental projects

5 Method Research, Develop and Demonstrate Financial Innovations Education/Training Financial Innovation Workshops Demonstration Projects

6 Initiatives The Genesis Project Yarqon River Financial Technologies

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8 Results Removing regulatory barriers to the municipal bond markets (demonstration project for Tel-Aviv and Rishon Le Zion) First regional authority for river basin management (Yarqon River Authority) Urban Revitalization Initiative (Genesis Jaffa) Financial Reform Proposals (Tel-Aviv/Finance Min.) National Microfinance/Small Business Program Expansion of KIEDF Training and supervising Knesset Fellows and Knesset Committees on securitization, urban revitalization policy innovations and Community Reinvestment Act Student Exchanges on policy/program development projects (IDC-Herzliya)

9 Financial Technology Transfer Best Practices Structured Finance and Secondary Market Development for Home Mortgages and Business Loans Capital Market Reforms: Reforms to further local equity and debt IPO market liquidity and issuance Environment Finance: Applications to river basis, park and water management Reinventing Local Government Finance: Municipal/industrial/project finance/real estate finance Urban Revitalization

10 Koret Knesset Fellows Policy Innovations Reform of Value Added Tax Expansion of SME Financing Launch of Microfinance Programs Israeli-Arab Economic Development Ultra Orthodox Sector Economic Development Proposed changes in law to encourage capital investment CRA for Israel Financial Reform / Regulatory Reform Israel Securities International Advisory Board Launch of Municipal Bond / Project Finance Urban Economic Development Jaffa & Jerusalem Environmental Finance Deregulation of Broadcast Advertising for SMEs North Israel Initiative CLO for Small Business Loans

11 Financial Technology Transfer: Results & Impact Project: Municipal Bonds / Infrastructure Finance Contribution to MI Israel Center ( ) Philanthropic Leverage Economic Impact (Ongoing) MBA Course Tel-Aviv University Workshops: Tel Aviv Municipality; Finance Ministry; Office of Management & Budget Technical Assistance & Municipality of Tel- Aviv / Jaffa $50k Milken Family Foundation $75k Tel-Aviv / Los Angeles Partnership $250 Million Municipal & Project Revenue / Structured Bonds: Tel- Aviv, Ramla, Ra anana, Yehud, Bat-Yam, others scheduled Direct savings in Municipal Financing Employment / Real Estate Impacts

12 Financial Technology Transfer: Results & Impact Project: Environmental Finance Contribution to MI Israel Center ( ) MBA Course Tel-Aviv University Workshops: Yarkon River Authority (YRA) Technical Assistance: Economic Department / Finance Plan (YRA) $75K Tel-Aviv / Los Angeles Partnership Philanthropic Leverage $150 Million Central Government for River Restoration based on plan report Economic Impact (Ongoing) Real Estate Development Yarkon Park Restoration in cooperation with Commercial Model for Park Development

13 Financial Technology Transfer: Results & Impact Project: Urban Economic Development Contribution to MI Israel Center MBA Course Tel-Aviv University; IDC - Hezliya Technical Assistance: Municipality of Tel-Aviv / Jaffa MI Summer Fellows from Tel- Aviv $120K Tel-Aviv / Los Angeles Partnership Philanthropic Leverage $115 Million Infrastructure Budget for Jaffa $2.5 Million Municipal Allocation or Jaffa Redevelopment $85 Million Operational Business Plans for Business Projects Economic Impact (Ongoing) Jaffa Revitalization

14 Financial Technology Transfer: Results & Impact Project: Small Business Microfinance Contribution to MI Israel Center Research Study $94k from Saban for study Philanthropic Leverage $ 7 Million in donations for Bank Deposits /Guarantees for KIEDF (Partner) Economic Impact (Ongoing) $49 Million in Small Business Loans

15 Financial Technology Transfer: Results & Impact Project: Food Insecurity Contribution to MI Israel Center $50k - Koret Knesset Fellow Report on Agricultural Price Support / Surplus Policy (Gilbert Foundation) Philanthropic Leverage $16 Million is food surplus destruction reallocated to school lunch program / food bank Economic Impact (Ongoing) Budget support extended day school program

16 Milken Institute Israel Center: Program Development Needs Expand Program of Koret Knesset Fellows Expand Inter-University Forum on Economic Development--Expand Faculty Fellows for teaching Financial Innovation Collaboration with Tel-Aviv University, Hebrew University, Haifa Univeristy, College of Judaea and Samaria, IDC-Herzliya, College of Management

17 Milken Institute Israel Center: Program Development Needs Create/Maintain Hebrew/English Website for Economic Development Training/Projects Financial Innovations Labs: Targeted Demonstration Projects (e.g., Northern Israel) Certification/Degree Program in Financial/Policy Innovation Short Term Training Course for Ministry/Local Authorities on Economic Develoopment

18 Challenge: Entrepreneurial Finance Capital Access Index 2006 Gauging Entrepreneurial Access to Capital Max = Hong Kong U.S. Israel Kuwait U.A.E. Saudi Arabia Lebanon Morocco Iran 6.0 Oman Egypt 5.0 Jordan Yemen 4.0 Syria

19 Lorenz Curve: Credit Market Concentration Indicating Inequality Cumulative Credit Distribution (%) Business Credit General Credit Lorenz Curve: Credit Market Concentration Indicating Inequality Line of Perfect Equality Cumulative Distribution of Borrowers (%)

20 Response:

21 Israel Entrepreneurial Finance Initiative Micro Poverty Reduction Micro Small Business Small Business Loan Capital Access Program Loan Loss Reserve Multi-Bank Small Business CLO Includes Micro Poverty Reduction Includes Micro Small Business Youth Self- Employment Includes Leveraged Loan Extension Restricted Accounts Includes Bank Hapoalim Israel Discount Bank Bank Leumi Mercantile Bank Government Fund Includes Bank Hapoalim Bank Leumi Mercantile Bank Government Fund NIS 2,000-20,000 US$ 450-4,500 NIS 20-50K US$ 4,500-11,000 NIS K US$ 11, ,000 NIS 500 Million (Mixed) US$ 110 Million NIS 500 Million (Mixed) US$ 110 Million

22 Challenge: Urban Revitalization Tel Aviv Jaffa Area : Socioeconomic Index Jaffa has remained an underdeveloped island in the middle of the populous and economically successful Tel Aviv Metropolitan area Economic levels are lowest in city - 28% are registered with social agencies - Average per capita income one half of levels in the rest of the city - Crime and social fragmentation are on the rise - Lack of educational, cultural, and social JAFFA institutions - Absence of stable middle class with young couples to purchase homes Jaffa is characterized by a high degree of heterogeneity between Arab and Jews - Severe housing shortage in Arab neighborhoods

23 Response: Urban Revitalization Jaffa In Transition -The Genesis Jaffa Opportunity The Genesis Jaffa Fund will be part of a development process that has already begun, neighborhood by neighborhood Jaffa Port Tourist Potential 2. Old City Already Developed 3. Clock Quarter Development Focus 4. Seaside District Private Seaside Homes 5. Jaffa Entrance Tayelet Promenade 6. Central Jaffa Residential Focus 7. Neve Zedek Hot Neighborhood 8. Ajami Depressed Neighborhood Jaffa and also Acre are not flourishing just because no one has taken them as a single project. If we connect between all their attractions, purchasing power will not be long in arriving, and they will become like all the port cities to which we flock to in Europe. Tamir Ben Shachar Chemanski Ben Shachar Investments Ma ariv, June 2003

24 Genesis Jaffa Project A Preliminary Analysis - Our Parameters Financial Test 12% Return Threshold The first question for our team: Could each project offered by the Tel Aviv Municipality hold its own as a financially viable stand-alone nvestment? Genesis Toolbox Could projects benefit from the application of financial innovations used by Genesis LA? Can public and private finance bridge the financial gap required for undervalued areas in southern Tel Aviv? Purpose Will the creation of a Genesis Fund for Jaffa serve the purpose of reinvigorating this historic area while also meeting the needs of its current residents? Fund Structure Which management/capital structure and what size of fund would be most suitable for the launch of a Genesis Fund for Jaffa?

25 Challenge: Financing Entrepreneurial Projects Example of the Master Plan for the Yarqon River in the Tel-Aviv Metropolitan Area View from the Sea View from the Mountains Layer Scheme

26 Yarkon River Restoration

27 Response: Financing Entrepreneurial Projects Developer $ Construction Fund $ Yarqon River Authority $ $ Investors $ Enterprise Fee

28 Challenge: North Israel Relatively high unemployment (11.5 percent, compared to 8.3 percent nationally), High poverty rates (36 percent below the poverty line, compared to 24 percent nationally) Low average income (77 percent of the national average). Five years of negative out-migration. Residential housing starts declined steadily after 1996 and have remained flat since Real estate price declines persisted from 2004 to Unemployment rates above the pre-intifada recession rate 9,000 Acres of Forest and agricultural lands destroyed

29 Response: Northern Israel Recovery and Redevelopment Bonds Public conduit issues bonds, potentially tax-exempt for investor benefit Private sector operator contracts for development and operation of infrastructure: Transportation (e.g. Hwy 6 expansion, railroad upgrades and new construction) Urban revitalization in Galilee Water & waste treatment (e.g. Central Galilee water treatment) Energy & environment (e.g. Recycling plant) Credit enhancement can be used to mitigate risk Can set up a State Revolving Fund to serve as an infrastructure bank

30 Steps for Implementation: Structure Credit Enhancement Infrastructure Projects Small Business Loan Program Existing Government Guarantors Philanthropic guarantors Dollars purchase asset-backed bonds that yield market returns Financing Pool Credit Reserve Fund* that yield below market returns Dollars contributed to capitalize Reserve Fund Market Rate Investors Banks Insurance Companies Pension Funds Corporations Concessionary Investors Foundations/ Federations Religious Institutions Charitable Contributors Foundations/ Federations

31 Northern Israel Revolving Loan Fund (Koret Israel Economic Development Fund Model) BANK Credit Small Business 35-50% 15%/ 16% $15, , :1 Deposit Guarantee KIEDF + Philanthropy Joint Venture PRI Credit Loan, Grants, Donations, Investment Dollars 1% Subsidy* Micro-Enterprise 60% 15%/ 16% $5,000-15, :1 Microfinance 75%-100% 5% $500-$5,000 20:1 Guarantee Amount (paid to Bank in case of default) Deposit of Outstanding Credit Guaranteed Loan Amount Leverage *In one instance, KIEDF subsidizes the interest to the borrower

32 Response: Additional Financing from the Chicago Climate Exchange Offset Program CCX Offset Program provides greenhouse gas emission reduction credits for reforestation of degraded forest land CCX Preliminary estimates suggest revenues in the range of $3.5 million over 20 years

33 CCX Forest and Agriculture Offset Program Offset Providers: Plan trees & reforest In-field verification of activity Verifiers (Private Contractors) CCX Members: Binding commitments to cut emissions or buy project-based offsets Aggregators (e.g. Farm Bureau) Bundling and documentation of offsets CCX Registry CCX Electronic Trading Platform Source: Based on Chicago Climate Exchange Overview of CCX Market Design, 2006

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41 Missouri State Treasurer s Presentation to the Milken Institute Sarah Steelman Missouri State Treasurer April 2007

42 We Have The Power Taxpayer money should never be used to support terrorism and terrorist sponsoring states. However, there are hundreds of billions of dollars making their way to state sponsors of terror, especially Iran, through public and private investments in this country. Even though Americans can t do business in these sanctioned nations, our investments have been a largely unknown and major source of critical cash flow for those who would seek to harm the United States. This should stop immediately. Here s what we ve done in Missouri:

43 Victories Four Major Victories So Far 1) Strict anti-terror investment policies and practices in the State Treasurer s Office. 2) The nation s first public pension anti-terror screening and divestment policies and procedures with the Missouri State Employees Retirement System 3)The nation s first terror-free public investment fund with the Missouri Investment Trust 4) The first offering in the nation of a private terror-free mutual fund in a State College Savings Plan (Missouri Saving For Tuition)

44 Missouri State Treasury Strict Anti-Terror Investment Policies and Practices in the State Treasurer s Office Prior to Treasurer Steelman taking office in January 2005, holdings in State Treasury included commercial paper and repurchase agreements of: BNP Paribas, involved in oil-for-food scandal and operations in Iran Dutch banks, also involved in Iran New Policies Adopted by State Treasurer s Office upon Steelman Taking Office Prohibits investments in companies that are known to sponsor terrorism or aid the government in countries that are known to sponsor terrorism. Prohibits the use of the services of a broker-dealer that is known to sponsor terrorism or aid the government in countries that are known to sponsor terrorism. This includes a broker-dealer s parent company, subsidiaries and all affiliated companies.

45 MOSERS $20.2 Million out of a $6 Billion portfolio identified by State Treasurer staff in companies operating in USsanctioned countries Examples of companies identified include: Arab Bank Royal Dutch Shell Petrochina Chiyoda Siam Cement

46 MOSERS New Anti-Terrorism Policy Approved by MOSERS Board in July 2005 Required implementation of a screening process to identify stocks of companies held in non-commingled funds that either: Are reasonably known to be operating directly with the government or a government-controlled agency in sanctioned nations listed by the U.S. government Engaged in the sponsorship of terrorism Results are required to be presented to the Board and the Board makes divestment decisions Staff is required to inquire at all manager due diligence meetings (I) about the risk that terrorism places on the manager s portfolio, and (II) what efforts the manager is undertaking to screen investments for possible terrorist connections. MOSERS contracts with two third-party consultants to identify companies meeting the definitions in Anti-Terrorism Policy Staff presents report to Board for divestment decision in executive session.

47 Missouri Investment Trust The Missouri Investment Trust State trust created to manage long-term funds on behalf of cultural groups in Missouri $22 million fund held in domestic and international equities $6 million was held in a passive EAFE Index fund (international) managed by State Street Global Advisors In Sept. 2005, Board adopted an anti-terrorism policy, which required implementation of a screening process to identify stocks of companies held in non-commingled funds that either: Are reasonably known to be operating directly with the government or a government-controlled agency in sanctioned nations listed by the U.S. government Engaged in the sponsorship of terrorism

48 MIT Request for Proposals On Sep. 20, 2005, the MIT Board authorized release of a Request for Proposal (RFP) for a large cap international fund with an anti-terrorism screen. Four firms responded: Morgan Stanley, State Street Global Advisors, UMB Bank and Julius Baer

49 Screening Process Board approved selection of State Street Global Advisors- International Alpha Select - the Nation s First Terror-Free public fund! New screened fund was implemented on July 31, 2006 MO Investment Trust (MIT) Client Works with CSAG to develop customized screen Receives portfolio data from SSGA and checks against screen Conflict Securities Advisory Group Consultant Transmits list of screened companies based on customized screen developed by MIT State Street Global Advisors (SSGA) Portfolio Manager Screens and rebalances portfolio based on customized screen Transmits portfolio information to MIT

50 Investment Returns MSCI EAFE Index versus MIT Int'l Alpha Select Fund $8,000,000 $7,500,000 NOTE: Chart reflects assets based on gross earnings prior to deductions for fees $7,525,003 $7,302,107 $7,000,000 $6,500,000 $6,386,696 $6,000,000 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 MSCI EAFE Index MIT Int Alpha Select 7-month total return MIT Int l Alpha Select Fund 19.15% MSCI EAFE Index 15.25% Variance 3.90% Returns are non-annualized and are gross returns prior to fees. Returns are since inception (7/31/06 through 2/28/07)

51 Conclusions What we re doing now: Sponsoring resolution in Missouri Legislature to call on all state investments to implement policies and procedures to make them terror-free Working with law enforcement and firefighter pension funds to implement policies and invest in terror-free funds Working with other Missouri investment pools, funds and systems to help their systems go terror-free Working with groups such as the Center for Security Policy on a national level to educate and incite a nationwide grass-roots movement to make all our investments terror-free, and thereby cut off the money to terrorists and terror-sponsoring governments like Iran Working with major financial institutions to develop divestment screens for individual portfolios Working with other state elected officials and legislators to take action

52 Contact Us Treasurer - Sarah Steelman MoTreasurer@treasurer.mo.gov Phone: (573) Deputy Treasurer - Doug Gaston Doug.Gaston@treasurer.mo.gov Phone: (573) Director of Investments- Mark Mathers Mark.Mathers@treasurer.mo.gov Phone: (573)