Q4: What's the new capital up to?

fall 2008

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Dialogs

What's the new capital up to?

Larry Summers has analyzed macroeconomic policies as a top academic economist, and helped form those policies in positions such as secretary of the treasury. He provides his take on the new forms of capital that are likely to affect markets, economies, and lives in the years ahead.

How does a sovereign wealth fund operate?

Sovereign wealth funds have become a source of controversy. They have the size — several trillion dollars and growing — to swing or stabilize markets. Meanwhile, their sometimes secretive strategies have invited worries that they could be used as tools of government policy. Jeffrey E. Garten, former SOM dean and former undersecretary of commerce for international trade, talked to Ng Kok Song, the managing director and group chief investment officer at the Government of Singapore Investment Corporation, about how one of the world’s largest SWFs is run.

Should capital be socially responsible?

Two decades ago, socially motivated investing accounted for a tiny percentage of worldwide capital. Today, investors representing $14 trillion have signed on to the UN’s Principles for Responsible Investing. What influence are they having?

What's the view from Dubai?

The Dubai International Financial Center was established in 2004 as a “gateway” to the capital of the oil-producing countries of the Gulf Cooperation Council. Yale SOM’s Ira Millstein and Jonathan Koppell spoke with a group of experienced investors in the region about the DIFC and the role of capital in the GCC.

Did innovation cause the credit crisis?

By 2006, the subprime market had grown to 20% of the total U.S. mortgage market, and 75% of these loans were securitized and sold off to investors around the world, facilitating an influx of capital. With credit easily available, more people than ever before were able to buy homes — but then the market seized up.

How do we write about capital?

Catherine Labio, an associate professor of comparative literature and French at Yale, studies the relationship between economics, fiction, and art. She teaches a course called Fictions of Capital, which explores the depiction of money and the economy from the 17th century to the present.

How is the new philanthropy different?

The wealth generated by the dot-com boom of the 1990s produced a new generation of philanthropists, determined to use their capital and their business savvy to solve social problems. A decade later, have they transformed the world of philanthropy?

Is something new happening with private equity?

From 2005 through the middle of 2007, one public company after another was bought out and went private. The size of the deals escalated — Hertz for $15 billion, HCA for $33 billion, Equity Office Properties for $39 billion, TXU Energy for $44 billion. Then the megadeals stopped. Andrew Metrick explains what happened.

Vignettes

Can capital overcome the past?

A South African government program aimed at addressing deep historical inequities enabled a union-owned investment fund to build up enough capital to reach around the globe. The mostly black workers in the union now own a piece of a hotel chain in the Middle East and a clean-energy company in Pittsburgh. How much can be learned from this success?

What used to be the new capital?

The emergence of new capital is an old phenomenon. Scottish investors bought cattle ranches in the Wild West. Early skyscrapers were funded with bonds marketed to small investors. The first corporate raiders assaulted apparently unassailable institutions. Index funds cut out the middlemen. Wealthy Japanese companies bought up American real estate. Look at the responses to each of these innovations.

Can a double bottom line bring better returns?

Why is a venture capital firm encouraging the employees in a company it funds to give free music lessons? They’re trying to prove the thesis that companies that engage with their communities also reap a business advantage.

Is emission reduction a new capital?

A firm of financiers, technologists, and policy mavens is bringing capital to bear on projects around the world that reduce greenhouse gas emissions. They hope to help turn the tide against climate change — and make a healthy profit.

Essays

How can we preempt investment protectionism?

Ernesto Zedillo, the former president of Mexico and a scholar at Yale, argues that overreacting to fears about sovereign wealth funds could hobble the global financial system. But he also points to the real risks inherent in the global imbalances that have fueled the recent growth of SWFs.

Have global capital markets shifted?

Sensing a broad change in the capital markets in recent years, the Millstein Center for Corporate Governance and Performance set out to better understand what was happening. Jonathan Koppell describes what he and his colleagues learned from a series of discussions with investors, directors, managers, and regulators around the globe.

One Last Question

What new form of capital could change the world in the next ten years?

Q(n) readers offer a variety of perspectives on the question.

Read all articles about new capital.