Monday, January 10, 2005
lately, i've been thinking more about this post i put together a few years ago on alternative securitization models & capital markets for "missing" asset classes such as natural resources, small business, and individuals. it keeps pounding & growing inside my head, like an unborn child -- my Athena, if you'll grant me the inherent arrogance there ;)
the concepts have come up in relation to other "alternative" pursuits i've been exploring such as microfinance / microequity, and other social entrepreneurship efforts -- and again more recently in trying to come up with a solution framework for global issues like the recent tsunami disaster, warfare in the middle east and africa, and the AIDS crisis and other disease / health issues.
once you create these alternative capital markets & asset classes, the problems become very easy to solve -- one "big picture" example i like to use is this:
1) securitize the aggregated future revenue of a large group of individuals in Africa (or elsewhere)
2) convince a large pharmaceutical company to take an investment position in this new security
3) get the pharma company to "give away" AIDS treatment / prevention drugs to those individuals
-- which in turn will --
4) generate "upside" on their investment by extending lifespan / improving health / increasing future potential revenue of the individuals who receive these drugs
5) move to next adjacent market, rinse & repeat..
get it?
if you understand how that works, then you should be able to make the subsequent leap to see how this type of alternative equity swap can be executed in a wide variety of scenarios to create financial incentive structures that improve the overall benefit of society. securitize the ocean to clean up the water, securitize education futures to provide pre-school funding for developing economies, securitize biodiversity benefits to help preserve endangered species, etc, etc.
however, getting the ball rolling initially by creating these markets appears quite challenging, and could require a process that takes several decades, significant change in political and legal frameworks, and hundreds of millions if not billions of dollars to get off the ground. not a simple venture by any means... but certainly one worth trying to figure out.
that said, i'm not sure i've made much progress in moving these ideas forward further, other than to refine the concept a bit here & there in my head -- and to perhaps fuzzily incorporate some additional ideas from the fields of mortgage finance, junk bonds, and derivatives. i've evangelized to a few friends, but i still feel i haven't quite sprung Athena from my forehead any more than that initial post from almost 3 years ago. i'm thinking a lot about next steps, but i'm also open to suggestion.
in the meantime there definitely seems to be a tipping point that has occurred in both microfinance & social entrepreneurship (see the Skoll Foundation's Social Edge and the Omidyar Network online for further discussions & links) in the past year. the groundswell was certainly apparent at the WRI conference on Eradicating Poverty Through Profit held in San Francisco this past December. i think as more events like that happen and microfinance matures as a field, there will be more fertile territory for new market-based efforts.
and maybe just posting on this blog is a tiny step in the right direction...
posted by Dave 1/10/2005 10:21:00 PM
