Conference Presentation, Panel
Expanding the European Economy: The Role of Capital Markets
Milken InstituteMichael Milken, Robert Kricheff, Damian Lillicrap, Giuseppe Naglieri, Grace Peters, Mike Clowden, Mike Milken, Damien, Bob
- Financial capital is projected to act as a multiplier for human, social, and real assets to address future challenges, with 3 billion additional people expected globally this century, primarily driving growth in Africa, while Latin America is viewed as a potential engine of growth due to urbanization and credit access.
- Small and medium enterprises are expected to create 67% of global jobs, and a 1% increase in high-growth business growth in the UK is projected to yield a 2% GDP impact, though technology may displace 30% of UK jobs within the next 15 years, necessitating education system reforms.
- Defined contribution pension systems are anticipated to replace defined benefit systems as sponsors struggle with liabilities, requiring industry leadership to address longevity protection needs and potentially utilizing government matching incentives to reach an 18% contribution rate.
- European banks are expected to remain over-sized relative to their economies due to regulatory delays in resolving non-performing loans, with M&A activity considered critical for balance, while corporate conservatism may hinder growth unless savings are unlocked for risk-taking.
- Financial innovation and capital allocation in Europe are forecast to be constrained by regulatory risks that could stifle investment, though the Capital Markets Union aims to diversify access through equity markets and retail investors.
- Western Europe risks falling further behind the United States in job growth if structural issues in housing and bank health are not addressed, potentially leading to a drift toward populism if the population shifts 5% to 10% toward anti-capitalist parties.
- The Eurozone is expected to be only two to three years into an expansion with a long road to a liquid, non-banked market, yet offers investment potential over the next four to five years given economic slack and an educated workforce.
- Large technology firms like Amazon, PayPal, and Alibaba are expected to continue expanding into lending with real-time risk appraisal, though they may eventually face regulation once deemed significant enough to be classified as banks.
- Private equity is projected to grow as investors seek higher returns in a low-yield environment, while financial investors are expected to fill capital gaps left by retreating traditional banks, particularly in markets affected by US regulation like Dodd-Frank.
- Emerging markets, particularly in sub-Saharan Africa, require capital deployment to prevent migration pressure on Europe, with specific focus on deploying capital into local currency Brazilian and Colombian bonds and using fintech to create wealth in Latin America.
- Socially responsible investing is expected to shift from negative exclusions toward positive actions such as funding retirement plans and education, while credit markets are anticipated to drive positive economic activism similar to how sulfur index bonds solved acid rain problems within 15 years.
- The London government's support for the AIM market and tax incentives is expected to continue successfully channeling capital to small businesses, though Brexit may drive European markets further apart despite London's deep, liquid capital market status.