INTERVIEW: Milken Institute's Richard Ditizio carves out a niche in the global forum jungle

Ahead of a second MENA summit, the Milken Institute boss Richard Ditizio explains why health and finance hold the key to everything. (Illustration by Luis Grañena)
Updated 10 February 2019

INTERVIEW: Milken Institute's Richard Ditizio carves out a niche in the global forum jungle

  • Ahead of a second MENA summit, the institute boss explains why health and finance hold the key to everything

In the international forum jungle, roamed by the big beasts such as Davos, Bloomberg and CERAWeek, how does a middle-ranking player like the Milken Institute compete?

Richard Ditizio, the institute’s president and chief operating officer, responded confidently: “What differentiates the institute is that we operate at the intersection of health and finance.”

If that seems a little specialized, Ditizio goes to great lengths to explain that health is not just about clinics or treatments, but is the totality of human well-being, from demography through to mortality; and finance is not just about raising money, but is the complete spectrum of activities by which people provide the resources for their lives.

Health and finance, he believes, are at the heart of everything else. The institute calls itself an “independent economic think tank,” but its raison d’etre is to “apply market-based principles” to “social issues,” which in effect boils down to health and finance. “There is lots of robust territory for us where those two meet,” Ditizio said.

The institute’s lineage demonstrates those values. It was founded in 1991 by Michael Milken, the financial innovator who virtually invented the idea of the “junk bond” (high-yielding corporate debt).

When the world of finance went sour, Milken devoted a considerable portion of his time and wealth to health issues, funding philanthropic initiatives to tackle intractable medical problems, such as melanoma and other life-threatening diseases. In 2004, Fortune magazine gave him a front page with the title “The man who changed medicine.”

Ditizio will be in Abu Dhabi this week, heading the second MENA summit that the institute has held in the region. The Middle East is a virtual petri dish for institute theory, as he explained.

“I’ve just come from Japan, where the problem is the aging population, but in MENA it’s the exact opposite. Here the issue is how to make youth function as part of a workforce at 40, 50 or 60 years old,” he said.

This, of course, is one of the main aims of the Vision 2030 strategy in Saudi Arabia: To provide meaningful economic lives for the Kingdom’s large youthful population, in a situation where the state will not be able to provide public-sector employment forever.

Ditizio likes what he has seen and heard of the Saudi strategy. “Having a plan is a good thing, for a nation or a business. Diversification, education, health and gender are the areas we see as important, and these are the key areas of Vision 2030, too.

“You can always tweak strategy as you go along, but I think it is heading in the right direction. If there are episodic things that distract from the norm, the strategy will help you get back on track. It is a touchstone to overcome obstacles,” he said.

However, he warned of the risk that big transformations such as those being undertaken in Saudi Arabia might destabilize society. “Stability is paramount. People beholden to the old way of life may find it tougher. It could get messy along the way, but the overall results will be positive,” he said.

Women’s empowerment is a big theme for the institute. Did Ditizio think that the changes in women’s status in the Kingdom were happening fast enough?

“You don’t want to permanently exclude 50 percent of your workforce from participating in the economy. Growth in gross domestic product will escalate if women are allowed to participate, and if you allow women to balance their personal and professional lives, it will grow the pool and lift everyone,” he said.

To some extent, the institute practices what is preaches with regard to gender. In comparison with some other global forums, which are still overwhelmingly male dominated, Milken has more than half of its workforce made up of women, and has a target of 30 percent female participation at its events.

“Lots of studies show that companies with more diverse boards have better financial performance. Those that don’t often fall behind,” he said.

Like all big think tanks, the Milken Institute has to gauge its initiatives on issues such as health and gender equality against the broader backdrop of geopolitical and economy performance. There is little point planning a long-term strategy on medical or social issues if the world is going to be turned upside down by, for example, a confrontation between the US and China on trade, or another financial crisis.

Stability is paramount. People beholden to the old way of life may find it tougher. It could get messy ... but the overall results will be positive.

Richard Ditizio

The analogy Ditizio uses — especially in relation to fears of a US-China trade war — is illuminating. “It’s like the difference between climate change and weather. There was a polar vortex in the US recently, but one cold spell doesn’t mean climate change isn’t happening.

“So although there may be an acute trade spat at the moment between the US and China, each country is so important to the other that I don’t think long term they are going to set out to derail each other’s economies,” he said.

Ditizio applies the same reasoning — long-term progress versus short-term “episodic” events — to the Middle East, too. “In MENA, we are all aware of the specific risks, but are they systemic, life-changing risks? If you develop economies in order to give people a more prosperous life, they are less likely to get involved in terrorism.” 

That introduces another key theme of the Milken Institute’s thinking — the power of financial market forces to bring about desirable social and economic change.

“There are pockets of capital around the world, some estimate it at $30 trillion, that are not being deployed. They are on the sidelines of the global economic system, in offshore funds, invested in other things outside the system. It’s capital that is not being used. If you can deploy that, you can help lift economies and generate a nice financial return,” he said.

That brought us to one of the big debates in the forum circuit at the moment: The role and power of philanthropy. At the World Economic Forum in Davos earlier this year, there was a disagreement between major donors such as Bill Gates and those who felt that big-name philanthropy was overrated and should now step aside in favor of a more efficient global tax system.

It is an area where Ditizio, as a former head of private banking for Citi North America, dealing with high-net-worth individuals on a daily basis, has some expertise.

“I think there is a disproportionate amount of attention given to the big-name philanthropists. There was something like
$350 billion donated in the US last year, and most of it was not by the ‘big’ philanthropists. But philanthropy still has a role, and that’s especially true of the Middle East, with the system of voluntary giving via zakat (Islamic charitable giving),” he said.

The other theme that he predicts will emerge at the MENA summit this week is technology, and its potential to upend traditional ways of thinking across health, finance and the regulatory systems that govern them.

“We are seeing it in fintech, and how that is changing the regulatory relationship; we’re seeing it in the clinical field, where artificial intelligence (AI) could be running synthetic trials of medicines,” he said.

The changes wrought by technology are fundamental. “Today we cannot live without an iPhone. Twenty years ago we had nothing,” he said.

Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019

Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.