MI Summit 2013 - London: Access to Global Capital: Investing in Growth

Initiative Launch and Strategic Framework

• The Milken Institute, in partnership with LiquidNet and the Africa Governance Initiative, launched the "Access to Global Capital Initiative."
• The initiative targets three pilot countries: Indonesia, Colombia, and Rwanda, aiming to accelerate capital flow to emerging markets.
• The core mission involves linking multinational firms and global investors with governments committed to policies that enable economic growth and job creation.
• A key strategic partnership was announced during UN Week with Tony Blair's Africa Governance Initiative to advance governance work starting in Rwanda.
• The program seeks to create a "sneak peek" effect where successful governance in pilot nations incentivizes other governments to implement similar rules to attract foreign direct investment.

Investment Philosophy and Risk Management (Ontario Teachers' Pension Plan)

• Ontario Teachers' Pension Plan (OTPP) currently allocates approximately 15% of its assets to emerging markets, with a board-approved target to increase this to 25% within five to six years.
• OTPP reported net returns of over 19% in private equity over the past 20 years and holds the top position in absolute and value-add returns for the past decade using this strategy.
• The fund employs a tiered country classification system (Tier 1 to Tier 3) based on liquidity, regulatory frameworks, and legal stability to determine investment appetite.
• Due diligence involves rigorous education of the board on regional themes (e.g., Africa, Mexico, Latin America) and bottom-up analysis of specific business value creation plans.
• Jane Foley (OTPP) emphasizes risk management over opportunity chasing, requiring alignment between pension fiduciary interests, management teams, and local regulators.
• Approximately 85% of OTPP's private equity and infrastructure assets are located outside Canada, and over 80% of its equities are held outside Canada due to domestic competition.
• OTPP maintains offices in the U.K., Hong Kong, and New York to facilitate global trade missions and direct investment opportunities.

Global Connectivity and Market Trends

• Seth Maron (LiquidNet) noted that institutional assets have grown 40-fold in the last 30 years, necessitating wholesale global exchanges like LiquidNet to handle efficient capital flow.
• LiquidNet operates in 42 countries and covers approximately 70% of the world's publicly traded companies to solve the problem of market impact during large trades.
• The Access to Global Capital Initiative leverages LiquidNet's experience to identify public market liquidity disparities and private investment opportunities in developing nations.
• A shift in global economic dynamics is observed where 80% of the world's population now controls more than 50% of the global economy, driven by emerging markets.
• Strive Masiyiwa highlighted that while 70% of Africans had never heard a telephone ringing 20 years ago, 70% now hold mobile phones, driving financial inclusion and access to health/farming information.
• Mobile technology in Africa has expanded from 2% adoption to approaching 85%, enabling real-time price discovery, weather updates, and night-time productivity for students.

Governance and Human Capital as Growth Drivers

• The panel identified the divergence in GDP between Singapore and Jamaica, and South Korea and Ghana, as historically rooted in the quality of governance and human capital investment rather than natural resources.
• Tony Blair emphasized that good governance is defined by stability, security, predictable rules, and the rudimentary elements of the rule of law.
• Since the early 1960s, power transitions in sub-Saharan Africa via democratic elections have increased from roughly once to 25–30 times in the last decade.
• Foreign direct investment (FDI) into Africa has tripled over the last 10 years and now exceeds the total amount of aid given to the continent.
• Strive Masiyiwa noted that Africa is better governed today than at any time since independence, though significant work remains to standardize regulations across 54 sovereign countries.
• Jane Foley stated that the board requires assurances of predictable regulatory environments, such as stable tariffs for infrastructure assets like water utilities in Chile, before deploying capital.
• The conversation highlighted that 80% of the world's economy was historically generated by 20% of the population; this ratio is reversing as emerging markets grow.

Specific Country Examples and Outcomes

• Rwanda: Cited as a model for rapid transformation, moving from post-genocide reconstruction to a cosmopolitan hub with world-class hotels, free K-12 education, and zero-tolerance corruption policies.
• South Korea: OTPP invested $100 million in a water filter company (Wojin Kowai) leveraging a local sales force of housewives, demonstrating success in non-traditional distribution models.
• Singapore vs. Jamaica: Both nations had identical GDPs and demographics 50 years ago; Singapore's focus on human capital and technology vs. Jamaica's focus on tourism/agriculture resulted in vastly different economic outcomes.
• Zimbabwe: Used as a cautionary tale regarding hyperinflation (currency becoming a collector's item) to underscore that economic value is derived from human productivity, not fiat currency.
• Indonesia, Colombia, Rwanda: Selected as pilot countries for the initiative due to their commitment to good governance and capacity for capital market development.

Future Outlook and Calls to Action

• Strive Masiyiwa urged investors to shift the narrative from "Africa coming out of poverty" to "Africa moving into prosperity," calling for investment rather than aid.
• Seth Maron proposed a next-step initiative to create economic incentives for an "African Union" or economic integration, similar to the European model.
• Tony Blair advised investors to physically explore these markets to understand that current realities often differ from outdated Western perceptions.
• Jane Foley predicts that as governance stabilizes, the number of viable African investment destinations will grow from the current ~10 to include many more of the 54 countries over the next decade.
• The panel agreed that the "leveling" of technology (mobile, digital education, internet) allows developing nations to bypass traditional infrastructure barriers and accelerate growth faster than historical precedents like Singapore.
• A demographic shift is noted with Africa's median age under 20, contrasting with a global median of 30 and a Japanese median of 45, presenting a massive opportunity for education and labor force expansion.