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THE NEW CAPITAL MARKET

By Stephen M. Davis

Project Director, Millstein Center & Lecturer, Yale SOM

   In the face of the increasing power of speculative funds, which are extremely aggressive, and of sovereign wealth funds, which do not only obey economic logic, there is no reason for France not to react.”  That was President Sarkozy at a Jan. 8 press conference kicking off a new round of political responses to the dramatic emergence of hedge funds, private equity, and state investment funds.  McKinsey calls these “the new power brokers.”  Grassroots political pressure is rising on governments to curb shareowner powers, with possibly serious consequences for economic growth, corporate performance, and investor wealth.

   The Millstein Center has embarked on a year-long series of high-level roundtables to probe the way market leaders perceive and respond to these new owners.  The project has been developed in cooperation with the Organisation for Economic Co-operation and Development (OECD), as it hears concerns among member states. 

   The Center convened its first roundtable in November 2007 at the Yale Club in New York City.  Participants included Ambassador Felix Rohatyn, former SEC chair William Donaldson, former SEC commissioner Harvey Goldschmid, International Corporate Governance Network director Anne Simpson and Relational Investors chief Ralph Whitworth.  The second roundtable assembled on January 11 at the London School of Economics under the chairmanship of ex Financial Services Authority chair Sir Howard Davies.  Discussants included Paul Myners, Financial Reporting Council chair Sir Christopher Hogg, Norman Pearlstine of the Carlyle Group, Antonio Borges of Goldman Sachs, the OECD’s Mats Isaksson, David Pitt Watson of Hermes and National Association of Pension Funds director Joanne Segars.

   The third Millstein Center capital markets roundtable is set for March 7 at the American Academy in Berlin. Others are planned for Sao Paulo (May), Dubai (July) and Shanghai (November).

   By year end the Center will produce a policy briefing designed to illuminate consensus and points of disagreement; identify areas of further empirical research; inform policy choices at the OECD and at national and regional public sector levels; and advance capital market understanding in corporate and institutional investor boardrooms worldwide.

   To comment on this article, please visit the Center’s Discussion board at: http://millstein.som.yale.edu/forum/