Financial experts at the 5th annual University of Virginia Investing Conference, which took place 15-16 November at the Darden School of Business, grappled with the intricacies of the global financial crisis, the new health care laws, the future of financial markets and energy, and the fast-approaching fiscal cliff. The 650 attendees of the sold-out conference gained insights from more than a dozen asset management experts who addressed the topic: “After the Election: Realities, Opportunities and Challenges for Investors.” The consensus: tough times ahead.
Bob Bruner, dean of the Darden School, said, “You came here for fresh ideas, and I don’t think you’ll be disappointed.”
Sheila Bair, the former chairman of the U.S. Federal Deposit Insurance Corporation and author of the book Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself, began by examining the root cause of America’s fiscal crisis. “It’s not rocket science,” she said. “It was caused by speculation with borrowed money.”
She criticized the 2008 government bailout: “People didn’t have to take their medicine. You made a lot of money then the government bailed you out. In fact, you were getting bonuses. Who wants to reform that system?”
To prevent another crisis, Bair said financial institutions must understand that bailout is not an option. She predicted, “I think the financial system is going to be smaller, and I don’t think it will be producing a lot of good returns.”
Kyle Bass, founder of Hayman Capital Management LP, turned attention to Japan, which has the biggest debt-to-GDP ratio in the world and, he said, is edging toward default. Its economic collapse would exacerbate the global financial crisis. “The smartest people in Japan are running from the yen,” Bass said, adding. “I hope I’m wrong, but I’m paid to be a realist.”
Speakers on Friday focused on the fiscal cliff, a term used to describe the more than $500 billion in tax increases and widespread spending cuts scheduled to go into effect at midnight on 31 December 2012.
Flip Pidot, founder and CEO of American Civics Exchange, a public policy futures market, sees “no zone of agreement” between the nation’s two political sides. “As the fiscal cliff problems increase, hiring is put off, projects are scrapped,” he said. “It’s a significant impact on the economy.” He predicts Congress will “continue to dither back and forth. We’ll see a short-term patch of fix. Then they’ll kick it down the road again.”
Lawrence Goodman, president of the Center for Financial Stability, is optimistic that an agreement will be struck but said the “fiscal cliff will continue to be contentious and rattle the markets.” Investors face “tremendous policy and regulatory uncertainty,” a shrinking financial sector and overvalued bonds.
John B. Taylor, director of Stanford’s Introductory Economics Center, took the pulse of the U.S. economy. “The poor performance continues. Things are worse than they should be,” he said, adding, “I think economic policy is the problem. The fiscal cliff is a representation of how shaky policy really is.”
Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, painted a brighter picture. “New orders are encouraging … consumer spending is holding up as is the consumer confidence level. The housing market is showing signs of life. … I have some confidence the housing recovery is underway,” Lockhart said.
Stephanie Ruhle, an anchor for Bloomberg Television — the exclusive broadcaster of the conference — moderated a lively Q&A on financial markets with Goodman, Lockhart and Taylor.
David Smith, associate professor in the University of Virginia McIntire School of Commerce, led a conversation on health care with Dr. Richard Evans, general manager and co-founder of Sector & Sovereign LLC; Robert J. Hugin, chairman and CEO of Celgene Corporation; and Dr. Jay Venkatesan, portfolio manager and managing partner of Ayer Capital Management. A key issue discussed was the future impact of the Patient Protection and Affordable Care Act, signed into law in 2010 by U.S. President Barack Obama.
“It’s so complex and so technical it’s mind numbing,” Hugin said of the law. “But it’s so significant. It will have a dramatic impact on different segments of health care.” Financing the new coverage will mean health costs will jump from 16 percent of GDP to 25 percent by 2025, he said. “We’re going to live our entire lifetimes reforming our health care.”
Evans noted that the new health care law will require a subsidy for about 65 percent of American households to buy health insurance on exchanges.
Venkatesan added that President Obama “is bringing an increased number of people into the health system.” The influx of new patients will create a shortage of physicians, and hospitals and health plans will likely merge to save money.
“We’ll bring in physicians from outside the U.S., and we’ll rely more on nurse practitioners,” Evans said.
UVIC enlightened investors on the challenges facing health care and offered business school students the opportunity to pitch their best investment ideas in the field. The new, student-led competition Darden@Virginia Investing Challenge gathered eight MBA teams — from Darden, Columbia Business School, Fuqua School of Business, Goizueta Business School, NYU Stern, University of Chicago Booth School of Business, University of Notre Dame and The Wharton School — to pitch an idea on investing in health care over the next 12 months. The Wharton School took home the $3,000 prize.
The conference also highlighted the vision for Darden’s next research Center of Excellence, the Center for Asset Management. The center will advance the study and practice of asset management through top-quality research, regular conferences and activities, support for the student club Darden Capital Management and the development of educational programs.
About the University of Virginia Darden School of Business
The University of Virginia Darden School of Business is one of the world's leading business schools, offering MBA, Ph.D. and Executive Education programs. The unique Darden experience combines the case study method, the highest-ranked faculty whose research advances global managerial practice and business education, and a tight-knit learning environment to develop principled and complete leaders who are ready to make an impact.