Over the past few years, as we move into what some call "Woodstock capitalism," my eyes turn west toward the Milken Global Conference in Los Angeles. You should check out the Milken Institute web page, because the group produces research and commentary that can make you money. Milken's annual conference brings together leaders from business, finance, education, medicine and other fields.
This year was no different as speakers gave presentation on many topics. When looking at global markets, many participants were concerned about the ability of the global economy to continue to recover. Mohamed El-Erian, chief economic adviser at Allianz (AZSEY), thinks growth must pick up substantially during the next few years or we could have a problem in global markets. He said, "While the Fed is easing its foot off the accelerator a little, the other central banks are pressing their foot even harder. So collectively, we're still in the central-bank trade.
A panel of three former Treasury secretaries -- Robert Rubin, Henry Paulson and Timothy Geithner -- expressed concern about the lack of growth given the stimulus programs we've had. Geithner warned that we live in a scary, messy world, and Paulson said that our policies are not changing fast enough to keep up.
One of the more investable sessions at the conference was "The Art and Science of Capital Structure." The heads of several alternative-investing firms such as Canyon Capital, Leonard Green & Co. and EJF Capital talked about the opportunities that have been created by changes in bank lending practices. Emmanuel Friedan of EJF Capital thinks there is a real opportunity for shadow lenders such as hedge funds and private-equity firms. He told the conference, "There is great opportunity in doing one of two things -- either finding companies that are already operating that are growing rapidly and have this unbelievable advantage against the banks" or creating "those companies from the ground up with a strong operator."
That opportunity should pay off big in the form of business development companies that are ready, willing and able to provide financing, particularly in the middle market. As banks back away from riskier markets, BDCs -- especially those with strong private-equity ties such as Apollo Investment (AINV) ¿ can capitalize.
Discussing where to invest, some leading private-equity investors pointed in similar directions. Leon Black of Apollo Global Management (APO) pointed to energy and Europe. Steven Schwarzman of Blackstone (BX) likes European real estate, while others on the panel favored areas such as health care and 3D printing as sources of long-term profits. All of the private-equity investors cautioned about the peril of paying too high a price for long-term investments now. Black said that "we are living in a high-priced environment, and one has to be highly selective in terms of what one buys." Schwarzman said it can pay to wait for the right opportunity at the right price, and told the panel, "We're like basketball teams without the 24-second clock. We don't have to shoot. I like easy shots. You can do that if you hold the ball for four minutes and don't turn it over." That sounds similar to my own suggestion that caution and patience pay off over the long term.
Robert Pittman, the CEO of iHeartRadio, made some interesting comments about the potential use of interactive billboards that struck a chord with me. He said that most people are spending more time in their cars, which could mean a huge market for billboards that allow consumers to use their mobile devices. Not too long ago, I mentioned a long-shot stock, Daktronics (DAKT) that makes huge display LED screens for stadiums and traffic signage and digital billboards. If billboards go interactive, Daktronics could see a huge upswing in revenue and profits. As a bonus, the stock actually pays a dividend and yields 3.8% at the current price, and so you get paid while you wait.
