Transcripts For CSPAN3 U.S. Investment In Developing Countries 20171212

Not we need to revisit the concept of u. S. Enterprise funds. U. S. Enterprise funds were launched in early 1990s by george h. W. Bush. U. S. Government dollars funded investments in developing countries. It was an idea that was ahead of its time. And there were several dozen of these Enterprise Funds that were launched. Many of them were very successful. Some that had some hiccups. But most were broadly very successful, but you would ask yourself, why hasnt there is any number of Different Countries where you would say we ought to be applying this. Thankfully, in the Obama Administration, there were a number of countries where there was political will to apply this tool, and i think its a very valid and useful tool for our tool kit in the United States. And so we have examples from tunisia and egypt that were going to talk about, as well. So were going to talk a little bit about the history of what are these things, how they come about, what can we learn from the past. How are some of the more recent ones operating. And then finally, i think the most important thing is about the future, because i think theres in some ways, this was it was certainly ahead of its time and there is a lot of learnings from the past. But i think there are plenty of countries where we ought to be applying this in new additional countries, but also maybe in different ways, given the fact that the world has changed from, say, 25 years ago. And so the instrument needs to adapt with the times. So weve got a very experienced group of panelists. Im really pleased to have all these smart folks on the panel. Im not going to go into bios, into detailed bios for each of them. But im going to ask my friend, page alexander, the executive director of European Cooperative for rural development, but more importantly a former assistant administrator and someone who was one of the point people on Enterprise Funds in several points in her career, but most recently during the Obama Administration. So page, thanks for flying in from brussels to be here. And then ill introduce each of the panels before they speak. So page, why dont you give us a little bit of context here on Enterprise Funds. Sure. Thanks, dan. I see so many people in the audience who know more about Enterprise Funds than i do, having spent years working on them. So ill just give you a brief perspective that i have, having come in 1993, and sort of seeing what it was like through the 90s, the early 2000s and then the colleagues with bo and jim seeing what they were like when they started up again in 2012. So i think Enterprise Funds were truly designed for a solution to a problem in a very specific context. And kim will be able to talk more about that. Because what we had in the 90s and early 2000s, as we were looking at a dual mandate of how does the u. S. Government get involved in these countries in a quick way that we can get quick results, poland and hungary, president bush wanted to announce something. These were designed in a vacuum of, okay, the u. S. Government does not have the Technical Expertise to look at private equity, venture capital. This is not what we do. We can hire private boards who can go in and set up these Enterprise Funds. I dont think, and there are probably other congressional staffers here who can attest to the fact that no one thought these were going to be financially viable or sustainable. So there was not a lot of thought done to what happens after liquidation. So then we spent most of 2010, onwards, trying to figure out what to do about liquidation, legacy funds, things that we could do to leave behind. But backing up to the Enterprise Fund, at this point, the creation happened so quickly, and with the dual mandate of you need to transition these countries to a market economy, yet at the same time, you need to make money. And then the mandate of development was sort of left to the accord of each individual board, as to how much of it would be truly developmentfordevelopment purists sake or was it going to be we will set up an airport in albania, a Banking Sector in bulgaria. Work with mortgage lending in the baltics. These things were decided amongst the private sector boards. So usaids oversite and state departments oversite became tenuous as congress it said to ask questions, what is it youre doing, how quickly are they going to be able to react. And so we went through a growth period of over 25 years. And i believe a report will be coming out soon as to what these Enterprise Funds and the legacies have left behind 25 years later. And i see, you know, other members from a Legacy Fund Im actually a member of the romanianamerican legacy fund. I see craig from the russian one. There are a number of people who are still part of this, and are actively involved. But dans question is truly, what can we do in an Enterprise Fund version 2. 0 . The specific context of the nis left us in a position to deal with very effective and educated people who just didnt have Financial Institutions in place and Banking Sectors in place. Those were things that fortunately cam and a number of people who were on the boards of those funds were able to jumpstart. And usaids continued oversight of that has gone from just the ambassador being involved to having 1,001 questions asked of you. And when the Enterprise Fund started in 2011 and 12, after the arab spring, no one really knew what the relationship was going to be. And ill let jim and bo talk more about that. But i think the unique challenges that we had in the Enterprise Fund as a new, innovate tool, have grown over time. We have usaid has feed the future. Its got Development Credit authority. There is power africa. There are a lot of innovative tools, and ive actually moved overseas, and im working on Public Partnerships with the dutch government to look at other innovative ways to bring private sector in, so its not just a public set of funding that has to go in to jumpstart some of these economies. So, i mean, i would say that on a whole, they have been blissfully successful. There are a couple that were unfortunately had di minimus returns at the end of the day. But when you look at the actual facts of 1. 2 billion in financing going to ten Enterprise Funds, covering 19 or 14 countries, 6. 9 billion in private capital being leveraged from that 1. 2. And then 225 million being returned to treasury at the end of it. Thats a Successful Development program. And its wonderful that they were able to do that at the time. And the question is, what can we do to expand on that, and do something new in some of the newer countries . Great. Thank you. I want to skip over my bo and jim. And i want to ask kim davis to make some remarks. Shes the chair of the balticamerican freedom foundation. Hes also managing director and co chair of the charles man capital partners. But you had more importantly, you chaired the baltic Enterprise Fund, as well as you were the acting ceo of the check slovakian Enterprise Fund. How did you get those jobs . Because those arent paid jobs. You had a day job. How did you end up getting that phone call and why did you say yes . Well, the first phone call was to join the balticamerican Enterprise Fund. And i thought it would be a really interesting way to observe the transition of postsoviet countries. And so that was an easy yes. They needed people who had private equity experience, and i did that. The czechslovak experience arose because one of our other directors was part of the white house and part of the acting board when the first board ran into some trouble. And that director asked me to step in as the acting ceo for six months, which i did in 1996. And essentially shut down the czech operation and moved everything down to slovakia. Which was the only really business decision that was available to us at that time. I had a very funny meeting with the ambassador in the Czech Republic who said, im glad to meet you, and i hope i never see you again after you leave the Czech Republic and the fund is out. So that was not a particularly successful one. But i would say, in general, anybody who thinks that Enterprise Funds can only you know, will have a different distribution curve of investment success than in the private sector are missing the point. There will be some good deals and bad deals and good funds and bad funds. And we have to simply accept that as a matter of course. Dan, if i might, we had a challenge that was very, very different than the one that jim and bo does. And i think a much more receptive environment. But just to give you a sense, i think the balticamerican Enterprise Fund was successful. We started with 50 million in three countries. We made three very specific decisions. We were going to focus on the credit markets, we were not going to adopt a quota system. We were going to respond to market opportunities. And have we were going to invest a lot in building our staff as a real legacy, what we were going to leave behind. We ended up with two businesses, a Mortgage Business and Mezzanine Capital business. One of the mistakes people make is they think Enterprise Fund means being a private Equity Investor. I dont think thats true. Private equity in emerging markets with a fragile legal structure is difficult. Whereas i think the credit markets are more open to innovation and to some development tools. Our 50 million turned into 820 million invested capital, both with flows and capital we leveraged. We originated 20,000 mortgages and accomplished the first securitization of a mortgagebacked security in eastern europe. So, you know, for us and we ended up with 60 million. And you could say, gee, 60 million from 50 over ten years is not a particularly great internal rate of return. But given three countries and the 1998 russia crisis given our development objectives, our view was that if we focused on preservation of capital and modest returns, investing in the quality of our staff and leaving a legacy behind of a more developed Capital Market that we would have done our job. And were still at it now as a Legacy Foundation. So while i dont think that what we did is necessarily replicable in the same way in tunisia and egypt because the geopolitical environments are so different, i do think i would like to think that the balticamerican Enterprise Fund is at least an example of why the Enterprise Fund concept should have a second life. Perhaps with some different rules and different environments. But it is definitely a worthwhile endeavor, and the ability to Leverage Private sector volunteers, which we all are as Board Members with usaid and state department folks, as well as local governments and local citizens, i think is a wonderful model, public diplomacy. So kim, how important is it to have the right board . It is the number one and only thing. We were very lucky. We had six Board Members. We had never met each other. We had the same six Board Members from 1994 to 2007. We had a great initial chair, roz ridgeway under president reagan. The two most famous people in the baltics were Pope John Paul ii and president reagan. So we came into a pretty receptive environment. And roz was a great leader to have in that. But the board is everything. Because the board has to exercise real oversight. We had active committees. We didnt micro manage management, but we absolutely knew what they were doing all of the time. And i think that allowed us to change course when we had to, redirect resources when we had to, and innovate when we had to. Okay. So what about when you started making money, and what happened . Did the government say, what do i do with this money . How did they what was that conversation like . So we sold all of our businesses in 2007. So in 2007, we liquidated. We sold our Mezzanine Capital business to a hedge fund, and we sold our mortgage bank, which, by that time was a 140person soup to nuts from origination to servicing platform to an irish bank. And my friend paige and i had spirited conversations about what to do with all of our money. And ultimately, we sent 25 million back to the treasury, and we kept 35 million for our Legacy Foundation, which is hard at work as we speak. Okay. So can you just spend a minute more on the chezechoslovakia. How do they find you and what did you do . So the acting board asked me to step in as ceo. I happened to have some time. I was between sort of moves in my career and i had six months available. So i took the job and flew to prague. You know, i think thats a story of a board that came in 1993, when the countries were together, 1991, and decided that their job was to just invest in anything and everything in minority equity positions in a country where there was just no Legal Framework or cultural understanding of what a private Equity Investment was. And it was just a mess. I mean, they they lost i think they lost about 75 of their capital in the first two years. And, again, you know, ive been in this business my entire life. Ive made a lot of bad deals. You lose money, but they lost at a rate that was beyond normal. But kim, let me just quickly jump in and say, did it have a happy outcome . Well, we closed down the czech activity, moved everything into slovakia. And they did. They had a second go at it. I think they did some very good things in slovakia. There is a Legacy Foundation there. Its unfortunate that we lost our ability to continue in the Czech Republic. But there was just no there was no additional funding available, given the history. Okay. So its fair to say, it was somewhat turned around. Yeah, it was turned around in a much with a much smaller footprint. Thats the point i want people to come away with. That there were some hiccups. There were some interventions made, and then it had a pretty good turnaround outcome. Once we accepted the fact we lost 35 of our capital, we did good things with the 25 that was remaining. But to dans point, you know, again, people are going to lose money, youre going make bad deals. Youre going to get your hiccups. And you just have to learn how to absorb them and move on. And thats what we did. Okay. All right. So i want to just spend one more minute on history and then turn to the present, to jim and bo talking about the president. And then i want the four of my panelists to talk about the future. I just want to dwell just for a minute on the past with my friend paige. So paige, i think there are theres a historic you know, historic memory of the Enterprise Funds. Theres sort of a short list of complaints that some folks have. What if someone was here and said, what about that fund or this fund that i was unhappy about what happened here, whats your response to that . What would you say to some member of congress and say im happy about this fund or that fund and therefore we shouldnt do any more of these. Whats your response to that . David kohls will take all of those questions of the thats my response. I would say yes, there were hiccups. And a lot of funds the way they were liquidated at the end of the day, some had de minimus returns, the central asia fund, the slovak fund, the hungarian fund, and they just sort of morphed into either legacy funds to do something small. But the majority of them ended up making unbelievable returns. I mean, bulgaria, for example, although there were some concerns about it at the time, the Bulgaria Fund ended up walking away with 200 no, 422 million at the end of the day for the legacy fund. And they only had to return 27 million to the u. S. Government. Because the decision had been made at the time when congress thought these were just funds that they were going to grant out, that question was, do you return the liquidated assets, half of the liquidated assets to treasury, or are you able to just return half of the initial grant . But regardless, the u. S. Government got 225 million back from a Development Grant program. And thats just almost unheard of. That really is a broadly Successful Development program when youre returning money to its u. S. Government. So i would say that each issue, as kim mentioned, some of it were the board structure. They just werent structured well. And there were incentives set in each of the boards that should want be have been there, or were there for the wrong reasons. Or it just wasnt a friendly environment. And i think that, you know, jim and bo can talk a little bit more about the different environments that they are facing now versus what Ronald Reagan and the pope what kim faced in the baltics. A simpler time. A much simpler time. And the u. S. Was wellloved, and it was helpful, because you were able to do everything in conjunction with the government. So okay, we have theres like three or four hiccup funds. Right. But there were like 12 or 14 funds that were great. Right. Right . Thats the Bumper Sticker you should take away from this conversation, right . So when people say, yeah, there were a couple funds and hiccups. Yeah, that was the small minority. Most were smashing successes. The other thing, i think, paige, that the u. S. Government and the fund boards themselves and the investment professionals had a lot of learning, as i said earlier. This was ahead of its time. And so theres been a lot of learning and improvement all along the way in the last 25 years. Thats a fair statement too, right . Absolutely. Absolutely. And i think congressional oversight, executive branch oversight, these are two things that also have had a lot of learning and growing to do. Because as we had talked about earlier, congress is coming at this from very different angles. Senator lugar wanted one thing, part of the reason the baltic money had been held up. Lugar wanted one thing, corker wanted Something Else. Its very difficult to react to congressional wants and interests at the same time of policy imperatives to get things moving quickly and looking at the market and recognizing these things werent meant to move quickly. And they have a lifeline of 10 to 15 years for investment and reinvestment. So so my one last point is, paige, while you were in the chair as assistant administrator, you asked the aide staff to put together all of the Lessons Learned. I suspect some of the authors are here in the audience. Which is sort of my view as the mustread document on sort of where we are in the Enterprise Funds. So could you just spend one second on that . Sure. There are probably two mustread documents. One is available now and it was done in 2013 with david coles and a host of people from the eurasiaa bureau and another done recently that i think will hopefully come out soon that is on the overall legacy of Enterprise Funds. Both those documents stand as Lessons Learned for this type of Innovative Private sector, private capital activity. Thank you. Okay. So thats enough about the past. The point is, lots of learnings, lots of success. And learnings from the errors and improving upon the errors. Thats the takeaway from the past on the Enterprise Funds. Okay. So lets move to the present. So let me start with my friend jim harr man, first. So jim, you got a phone call from tom nides, two of the smartest people in the Obama Administration and they said we need you to set up an Enterprise Fund in egypt. What was your reaction to that, and why did you say yes to that . Thanks, dan. First i want to congratulate you and csis for doing it. Its a subject that warranted a review, and its good to have the opportunity to discuss it with you. Secondly, youve invited some people who are very good illustrations of talented people, and i might even think they may be the best of a lot of the people who have run Enterprise Funds. So the audience can walk away thinking, wow, this is a very talented group of people. You should know, not everybody ive met who have taken on this assignment has been quite as effective as the group in front of you now. No now, i got a call i had served in the Clinton Administration from 97 to 2001. I was chair of the xm bank. I have to admit, i didnt know what an Enterprise Fund was. And no one talked about Enterprise Funds anywhere. At the xm bank, during those four years. Maybe that was my fault. But i certainly heard very little about it. So obviously, i said to michael and tom, i didnt really know what it was. So i would have to think about it. I actually took three or four months. And i government in the United States does not present you with a kind of background summary that helps you to make a decision. And so it was i dont mean to be critical of anybody now. But it was three months later that i found that usaid did a very interesting and valuable study of whether or not they should have an Enterprise Fund in egypt. How could i have worked three months and talked to everybody and no one gave me that . Thats an illustration of and i was part of the Clinton Administration. So this was not a change of party. So can you imagine how our government treats someone from another party . In any case, we did we did do the study, and ourselves. And i did make this decision sometime in april or may, four months later, i would go forward. So the call was just a usual call. They had been as you probably all know, once you leave the United States government, if youve been confirmed, its not uncommon to get a call from someone in government to ask you to take assignments. So i had already had four or five assignments for limited areas to help the world bank on this or that. And it didnt interfere too much with my day job. But my day job was running a fund that was investing in the frontier and developing world, some 30 countries. So i had been following, obviously, the frontier developing world very closely since i left the government. Does that answer your question, dan . Yes. But jim, what what prompted you to say yes to this . I dont know. My wife asked me that question often. [ laughter ] when im when im stuck in the middle of traffic in cairo, during some demonstrations, i think to myself, what did prompt me to do that . But do you want me to give a little background . Yes, please. So, first of all, you should all know, the egyptian Enterprise Fund was different than all the other Enterprise Funds, in a few aspects, which prompted most former chairs to tell me they didnt think i should do it. First, the relationship between the United States and the Egyptian Government was not very good. That may be an understatement. At that particular time. So unlike the europeans, where you were welcomed when you went to the country, on my first trip, the Egyptian Government said, the 300 million that has been authorized for the egyptian Enterprise Fund is our money. Youre taking our money. It came out of the camp david accord, and so forth. What is your explanation of that . Of course, that was way above my pay scale and i had no answer for that. The white house hadnt briefed me on the fact this was going to come at me on a regular basis. So the relationship between the two countries were strained. Secondly, it was a sophisticated market in egypt. They were trading inequities, a lot of talent, a lot of experience. We had been investing, you know, our day job in marketable shares in egypt for some time. Quite a bit different than the european Enterprise Funds. The third clearly was there was violence all around. You didnt have that much violence in europe at the time. And i could go on and on in the difference. On my first trip, i realized this was the first decision i made. Maybe the best. Enterprise funds are like a business. It depends on the quality of the people. You have to have a yes, kim is right. The board has to be important. But your ceo is very significant. Because i was not going to sit in cairo and find investments without having devoted my life to it. So i knew i had to do two things first. One was egyptianize the Enterprise Fund. What does that mean . That means the management, the ceo, had to be egyptian, and the board had to be egyptian, as much as we were allowed to. We were legislation calls for three egyptians and six american citizens. We modified it to six egyptianamericans or three egyptianamericans and three egyptians and three americans. Actually, just two of us did not speak arabic. So we started with the board, and then i went about trying to find who should be the ceo. And thats a long story, which we dont have time to tell. But i got i think we got fortunate. We found a very capable man who had been trained in new york, morgan stanley, years ago. He was running a boutique. Then we got lucky again, because when i told him what i thought we could pay him to take on this assignment of finding the investments, he said i make more than that now. Why would i do that . And then a light went off in my head, and i said, i have an idea. You should form a management company. Well be your first client. Youll manage our money. Or some of our money. And well pay you a fee. So when the Enterprise Fund lick which dates out, youre going to have a very major asset manager that will be very successful. And he liked that idea, if we would help him do it. And today is a very successful Asset Management company. And five years from now, it will be a very large factor. They have the best talent. They have drawn in the best talent, in my opinion, that ive met in cairo, who are running that now. So that was the first business. And that was our literally, early on decision to create employment. Because all those people went to work for that. My most important decision ive said already was hiring aschoff zachy to be the ceo. I talk to him almost every sunday. As you all know, sunday is a workday. So for the first two years, we talked all of the time. He has built a terrific business, totally trustworthy. I would if i were allowed to invest in the egyptian Enterprise Fund, i would do it. Ive been saying this over and over again. They should under the rules right now, im not allowed to do it. But i would have done that directly, and that would have demonstrated the commitment that i had personally. Of course, i could not do that. My first surprise, no one wanted to have the u. S. Government own a piece of their business. No one wanted to even sell 10 or 20 to i dont mean to pick on usaid, to any agency of the u. S. Government. So i hadnt realized the extent of the animosity or fear of that. How do we overcome that . That was a trick. Thats why we had to egyptianize it. But we would have meeting after meeting, and we were buying equity, because this is a country that needs equity more than debt. As you may know. Equity was extremely important. So we had to overcome that. First mistake, we wanted to buy a bank. We knew that financial inclusiveness was absolutely critical. No small or middlesized enterprise without capital can grow, and our task was to grow the economy. If you grow the economy, youre going to create jobs. And thats very important. In most of the countries, as you know certainly in egypt, you have maybe a 30 unemployment factor in the youth. Thats a dangerous factor Going Forward. You have to solve that problem. You have to find a way to create jobs. So you have to grow that. And i felt by buying a bank, we would be able to make loans to small and middlesized Enterprise Companies directly, and i could get my former agency, the u. S. Xm bank to enter into a joint venture to provide funding, to be on lent to businesses wanting to buy something in the United States. And i was so confident we confi successfully that we talked to kfw in germany and another other countries to join with the bank model, so we had a consource yum, we could have been 4 or 500 million. Big surprise. The bank rejected my effort. That was a lost year. It takes a long time to build a business. We spent a year trying to do that deal. We couldnt get it done. We then did act quickly. If were not going to get a bank, well get a Consumer Finance business. We found a leader finance business and we bought that and that has led us to provide very significant number of loans to smes and to hire a lot of new people. Thats another long story. Our First Investment couldnt have been more successful in my judgment. We bought what is the leading Electronic Payment Service company. Most of you probably know or if you dont, less than 10 of the people in a country like egypt have a bank account. So if you want to pay your bills, you have to wait in a long line outside the utility to pay your bills. A paypal type business, in this case, run by a very bright man could be very successful and it has been very successful. So today 25 million egyptians, 25 million egyptians use the foulry Payment Service and its on its way to half of the countrys population. So if you talk about making a difference and making a difference quickly and making a difference on the development side, if half of the country, if 45 Million People are using this and their quality of life is better, not to mention the fact that this companys growing like this and is going to become a publicly traded company in a year or two or three and well get all of our money back but that that is making a very significant difference. I dont think theres time and i want bodia to have his share of time. So far my experience in egypt has been challenging but i think the United States will clearly get back very significant amount of money and there will be profits that were shared. How we share it we havent yet decided upon, but it indicates to me the future of Enterprise Funds, but i think in each country things are a little different. So you have to analyze it. You must be careful. You cannot put americans on the ground in most of these countries in my experience. You really have to have it localized in that sense. You need to buy in and you have to be something of an ambassador yourself. You have to be making friends and building relationships. A week does not go by where egyptians do not come into my office in new york and i have two very talented egyptian working in my office here. I would introduce them because theyre here in the office but i dont have enough time to do all that but everybody associated on this business is egyptian and theyre very capable and without that capacity we could never achieve what were going to do. Just recognize you would your two colleagues who are here in the audience. Emal, where are you . You should stand up. [ applause ] so ill tell the brief story if i may. We have a very talented egyptianamerican who is very senior partner in a private equity firm in boston and he and i were talking about it. You should interview them. It was obviously coming out of the Business School very talented work. So she knew the government and she knew the u. S. And having come out of harvard. It was a nobrainer. For three years people will say i couldnt have gotten i could not have gotten anything significantly done without her help. So if she leaves me, im leaving too. Unfortunately, she just got married to her egyptian fiance and they were gone for two or three weeks on a honeymoon and i had to go back to doing everything all over again, which made it extremely hectic. Yasmin is there if you want to stand up. And she is come in only three or four months ago but also very capable. This is what i mean by the human talent. I could build an Investment Bank around her. Next to her is yara who was an intern with her in egypt. There are others who want to talk. Thanks. Thanks for being here. Youre the chair of the tu in addition american Enterprise Fund. You got a phone call to do this. Who called you and why did you say yes to taking on the challenge of running the tu in addition american Enterprise Fund . Same two people. I had known tommy and i forever and mike froeman had worked for me in the earlier part of the clinton years so that i knew and trusted both of them. And it wasnt a terribly hard decision. I had spent a fair part of my life dealing in a combination of both development and finance. The finance part in the private sector, the Development Part and so the possibility of combining these in the kind of environment under the kind of context that the that an Enterprise Fund met was a very attractive challenge. To me it wasnt it wasnt much of a struggle. Okay. So tell me about what your experience has been to date . Did you have the same kind of challenges that jim had or did you have different sets of challenges . What was it like setting up the fund and whats the makeup of your board and whats the kind of investments youve been making . Starting it off, investments and deals are Board Investments and deals. All right. Our context is completely different than egypt and jim has had in an immediate sense a much, much harder problem. Tunisia as opposed to egypt the time has been is predominantly favored toward the United States so i never have faced any of the kinds of difficulties that jim faced and i admire what jim has had to do in the course of getting through that. Mine is a little bit different. Tunisia is right after a revolution in which the dictator had been a clepto crat for a generation so that the structure of the tunisian economy was exactly what you would expect. There was a World Bank Report about the time that i took on the role about the amount of money that the departed dictator who had been run out of the country had taken from the tunisian economy. There was capitalism was kind of was an expected event but one of the things you find it was a learning experience for me is that one of the things you find is the tentacles of that extend everywhere and they effect vastly the whole regulatory system and they effect the structure of the economy. So tunisia was, while much more friendly environment was also at the same time a much less developed economy in the sense of egypt. The other difficulty of tunisia is as a friend of mine said and i hope i wont offend anyone in the audience, one thing youll discover is the dead hand of french bureaucracy. As opposed to the u. S. Where the basic underlying rule is if it doesnt say you cant do it, then you can try to figure out how to do it. Under french law and tunisian regulatory law. If it doesnt say you can do, you cant do it so we had real problems in the setup. We have set ourselves up as a nonbank financial business. We meet all of the tunisian regulatory requirements but getting to that point and if you really looked at the details of our structure you would find some fairly squirrely elements and the reason for that is because of the quiet and the i think enormous creativity of our board and the absolutely phenomenal person that i found to be our chief operating officer, we found a way around all the rules. But no one else in tunisia ever has. Were the only person we are the only institution that exists in tunisia that can invest the way we do which is across the full gamut of dead end equity and there is a point there to underline, which is that these are akin to startups in every conceivable respect except that you dont have to raise the basic money. Having been involved in lots of startups in which i was the investor, actually the raising of the money is not the hard part of the startup, its figuring out what the business is and setting up a structure and finding the people all of which we do and there are there were two complications that hit me constantly. One is that one way in which the world is different now than it was way back is that we have to meet every single one of the new u. S. Financial regulations. So we are we are hit by doddfrank and were hit hard by a legislation like that and once when you begin to talk to those authorities, theyve never heard of Enterprise Funds and theyve never heard of a. I. D. That were a financial entity and we have to meet those rules. So in tunisia, were not some favored entity. We have to meet all of the regulatory structures of tunisia or we cannot function. So the time it took an immense amount of time to figure out what it was that we could do and then learn that most of what we wanted to do we couldnt do and then figure out how you would do it despite that fact, and it took a year and a half to do that. Theres an issue there and one of the things that i was going to talk to and ill just mention one of them now is what are some of the problems . Doing things requires immense patience on the part of the u. S. Government. I had the enormous good fortune, jim and i did in dealing with a. I. D. To deal with an organization that had the patience. The person with whom we did most of our negotiating bill is right in front of us, paige was one of the others but that in general patience is not a recognized virtue of the United States government. As soon as youre two close frenz who invited you to do this leave, there is no one this the u. S. Government whoever heard of you or ever cares about you for one second. And so you are the one whos doing the integrating, youre the one who has to go and talk to the white house, but, by the way, theres no one in the white house who even remembers setting this thing up. Beau cutter, who is that . And Enterprise Fund, who is that . I would not i would not use this mechanism and i love this mechanism and being asked to do it is a gift and i have found it to be just a tremendously important to me in addition to what i hope we accomplish but i would not do this if we did as a wider purpose if you did not figure out a way to have the u. S. Government see these as Something Different than a one off beyond a. I. D. You said what do we do . We set up a nonbank financial business. There arent the Financial Institutions to buy or to invest in to in tunisia. I started with the same view. I was going to buy a bank. I discovered that the bank as bankrupt, that the tunisian government nevertheless wanted to be paid a substantial amount for this bank and we would have to fire a large number of people. That struck me as a three fer, the three bad reasons to do a deal so we didnt do the deal. Well eventually so what weve ton is set up a nonbank financial business and we invested across the whole spectrum of the small and medium sized spectrum. Our investments each one of them is quite small. They sum prn about the same amount that jim has invested and were expecting a different right of return. We underwrite our deals to a 15 rate of return after you take out cost and the fact that well have deals that break, were looking at some where between an 8 to 10 rate of return on our ongoing activities and im assuming well get lucky and that our rates of return will in the end will be somewhat better than that. I actually think well make our real money and have the Real Development effect by backing into owning a Financial Institution. Either because the institution that weve set up much the same way that jim did is itself going to be a leading Financial Institution in tunisia or because as is beginning to happen, a couple of the places that weve coinvested need more funds are going to have our equity. So thats what weve done. The the basic how weve done it and the board, our board is we meet the u. S. Rules that its its six american citizens and three tunisian but there are a few cross oefrz in that and if i could be a little bit more flexible on that i would. Every single one of my Board Members is a working professional in the financial field. Four of them are executive officers in something. I know how good jims board is. Ill stack our board up against anybody. There is nobody in the financial world who has a board any better than ours. And we know this field. Its a little hard to get people who are ceos in their fields to come and do something for nothing, but theyve all it is a real working board. The point that jim made that you have in his case he had to egyptianize it holds for me too. With the exception of me and Louise Crawford who is right there and who has helped me and been more than critical doing all the unbelievable amount of work that you have to do here in the United States to get one of these things to keep one of these things going, everybody else in the taft is tunisian. Our chief operating officer say woman who is absolutely phenomenal and who has been the life spirit behind this work and my i have a similar nightmare as jim did that kind of every night i just hope to god that something didnt happen that gets hala to think what she ought to do is cash in and earn four times as much some where else. But at the moment she seems dedicated to the work. Ill make one or two more points and the jim made a point about equity and i want to make a point that our money this goes for jim but i know it goes for me is actually considerably more than the amount. I had in theory have 100 million. It comes in straunchs. Its another aspect of a problem that i would solve is that the whole rest of the u. S. Government because of the fact that there is no real level of patience regards that money as money to be taken away. Theyve done it once, theyre trying to do it again. So no one can comfortably say they have x amount of money because thats what, in fact, has been committed to it. You dont have it till you get it and its a view that i would express strongly to the congress and i already have. Lets assume i have 100 million, thats onethird of 1 if i use rather than purchasing price parody. I use Exchange Value gdp of the tunisian gdp. In the following way, first of all these countries are critically investment scarce. My basic numbers are that for a country like tunisia to have a decent growth rate it needs to invest around 24 , 25 of gdp. My guess is its some where around 12 right now. Its got about a ten percentage point gap. The tu in addition government is investing approximately zero because most of its money is spent on salaries and subsidies and funding the deficit. So theres virtually no Public Sector investment and if you look at the private sector investment, my judgment is that almost all of it comes out comes from the big Family Companies so almost nothing goes into the sme sector. So i represent with my poultry 100 million basically all the Equity Capital there is. In the country. Notice country for what we want to invest in and i want to invest in the core of the medium and small enterprise sector. So were all the equity. And in that respect you can mag if iify a little bit and the second is that because to one really the second point about that is because no one focuses on the sme sector, id say as a general rule that the that small businessman get royally screwed by every country on earth. There is no country that cares that every country says how much it cares about the small and Medium Enterprise sector. No country actually does much about it. Almost all of the small and Medium Enterprise banks public banks in the world are bankrupt. So if one of the things we can do is show that a vibrant sme sector matters to growth and development and at the same time show that you can actually make money with sensible investments in it, we can by that alone have a substantial effect. Great. Okay. So ive got i want to start with kim and go down the row here. I want you to each talk about if you had if you were going to create an Enterprise Fund 2. 0, so for example, the u. S. Congress is talking about has some legislation thats talking about establishing one for jordan which i think is great. Lets assume that there are a dozen countries or two dozen countries where this could work in some way, shape or form, what kind of adjustments based on this conversation and from the lessons that youve learned, what would you say if you were going to create an Enterprise Fund 2. 0. Kim, ill start with you. Yeah. I think im much less qualified to answer that question than jim and bow because their experience is obviously much more recent. For me, i do think that there has to be some better mechanism for usaid and i think it should still stay at usaid the relationship with the funds. When our fund were set up, basically, the white house appointed a board and then it was selfperpetuating. The board had approval rights but never exercised them as people came up and i think there were times when there was a lot of frustration at usaid with the relationship of the board so i would probably spend a little bit more time its great when you have a board as jim has and bow has and our board was equally very strong. There has to be some more formal ongoing mechanism between the relationship between the Enterprise Fund and usaid. What you cannot do is have usaid mike crow management at any level with respect to deal approval and you have to keep a clear sense that although were on the same team because its u. S. G funds we are different teams and were doing Different Things with different time lines, so that would be my one overriding comment more formality with respect to the usaid but nothing beyond that in terms of involvement. Great. Maybe just a couple of reasons why we should be considering Something Like this. I always tell the story about in my last year at exyom bank, chinese wanted to see me and i thought they might want one or two people but they said no 55 people. 55 people. Its only 450 people but i didnt know then is that china had its export credit agency, its bank was providing funding for Something Like 2 or 3 billion a year. The United States was doing about 15, 18 billion at that time. Today, the chinese have three export credit agencies and provide more funding for their private sector exports than all the other 83 export credit agencies in the world by three. They do more than 500 billion. Its a staggering amount. Now why did i tell you the story . Chinas hasnt figured out yet that they are a variation of an Enterprise Fund. Theyre encouraging their own private sector to go out and make investments and so forth, but if theres anything that would convince the members of congress is to just take a look at chinas heading towards a giant Enterprise Fund for all the developing world. They might do it slightly different and thats one factor. The other factor is something which i give dan and the credit. Developing the growth agencies in the last ten, 12 years has been very great, seven fold in their level of activity. They far surpass today foreign assistance programs and thats where were heading in the next five years, very Significant Growth if supporting investment in the private sector, now in Enterprise Fund in my judgment is i havent discussed this with others, but its a variation of Development Finance institution. Both both are transaction focused. Both want to invest money either Small Businesses or large. Both support the private sector. And both frankly, make the same impact on job creation and Economic Growth. If any, of us were looking at what could the United States what could the United States do to help Economic Development . Lets face it if you have unemployment at the rate we have in some of these countries and we have the kind of violence we have all over, we have got to work on Economic Development and create jobs. If we would focus on that we would conclude that Enterprise Funds in its current structure, there could be there could be modifications made, there could be improvements made but the concept of supporting private sector growth, that is whats important. The imf is responsible for stability and they came into egypt and theyve created stability in egypt now. But they he cannot in my judgment, i havent seen any evidence, help create Economic Growth in egypt. It comes from private Sector Development, private Sector Development will come from Something Like Enterprise Funds, multiplied to a much larger extent. The other comment is that you dont need as much money. I wouldnt want to make this statement too many times publicly to my friends on the hill but once the u. S. Puts in an amount of money with the private sector looking to make investments now in a country like egypt, it would be different in tunisia and it was different during kims day but today private equity firms all over the United States are looking to make investments and we took in our first deal because we wanted to prove to egypt that we could bring in other investors that was part of our mission. So when we bought fowlry it was 100 million transaction. We took in two private equity firms for 80 million. They had never invested in egypt before. We could be all Enterprise Funds could be when you get to an egypt size could be a catalyst for a lot of private sector. If i were asked in the next x number of years the 300 million that we have now in the Enterprise Fund in egypt will be 1 billion. Part of it will be coming from the profits weve enjoyed but most of it will come from us bringing in other investors. It will be a 1 billion that we will end up investing, maybe larger. The message in that is, if the u. S. Doesnt have to put up that much money. If the u. S. Puts its quote name and support, people will want be involved and so it can be done with u. S. Support, so i think the argument to congress, you dont have to budget that much and the u. S. , just like the Development Finance institutions will get all of its money back. All of the money comes back and we achieve a goal of helping the private sector to grow and help development. We have created, we have counted as best were able to 500 jobs, lets say. Its going to be a much larger number because the expansion of the actors we have. We have a little easier task because its a larger country and we have a lot more private sectors to invest in, but i think that my conclusion is clearly that the Enterprise Fund is a very good concept. We have to figure out a way to do what were doing today, tell the story, so the u. S. Government can think about it. I happen to be cautiously optimistic what im about to say because it has a comment about this administration. This administration for whatever critical comment you have and i have plenty, however, it does respect the private sector and the private sector is the key. We have in the United States the greatest private sector ever created man kind by far. Thats why we ended up with the kind of economy that we have right now. So to take the talent we have in our prioritier private sector and match them up with a limited amount of funds to go into various countries to help develop their private sector is doable. Maybe itll take a focus of a particular group in the government but this administration might understand it that would be my conclusion. Thanks. Bow . Ill talk briefly to three topics. The first is to agree emphatically with what jim just said but add a little piece to it. The second is to talk about the context that future efforts like this should be set in and the third is to talk to what seemed to me to be the critical elements. First, the i cant improve on jims thoughts about the way in which the world is turning and why these matter, but i had some hesitation about using these numbers because they do say a little bit about how old i am but thats probably apparent any way so i wont ill do it any way. I was i was i was leaving a a confirmed role in the Carter Administration when jimmy carter asked me, this is toward the end of the presidency, to kind of take a look at international flows and to talk to him a little bit about development, and thinking back now more than about 40 years later, the at that time approximately 80 of the international flows to the developing world and this may be true for the whole world were official flows. Foreign aid. Oda and other official flows and about 20 were pure private sector. In other words, the entire International Financial markets grew up in the 80s and 90s and those of us all of us its kind of like speaking pros all your life and not knowing it is we all together grew up in that era and now its flipped and Something Like 90 of all of the flows in the world are commercial and 10 are official flows, oda flows. And that says that the nature of the world in which you have to carry out development has fundamentally changed and im not so certain that a kind of deep gut realization of that has sunk in all of the Development Institutions around the world or in the u. S. But what it really means is i think part of this all of it is extremely healthy which is that the way growth is going to happen and a world of chaos exists happens if growth doesnt happen and if its not an inclusive and equitable form of growth, which is, by the way, the way the reason i want to focus on small Medium Enterprise, but the it has to be through a Healthy Development of the private sectors. And that has that means that governments and the only government i really care about is the one were in, this one, has to focus has to think about what are the tools that let us Foster Development that way. This is not an ideological opposition to old fashion development. I was a member of the c. A. R. E. Board for 19 years and i was its chair for eight, so i think about and care about that kind of development but to be absolutely honest that kind of development is in the wait of things is diminishing and what were doing here is increasing. So we have to have institutions that deal with and know how to deal with private sectors all over the world and those are inherently going to be financial. I could extend that, ill just note the points to say that what that means is that often equity is incredibly important. One of the many groups i feel sometimes like a vietnamese pheasa pheasant. And this is true of all of the varying devices that have been existed to evaluate jim and me, but in one of the them a team that came were listened in rapped attention as i explained something completely new to them which was there was a difference between debt equity and that difference matter. This was a group that came to evaluate me. So sometimes by a little bit of chip on my shoulder about this youll understand it. What jim basically said was right and that the way the world has turned makes what jim said essential. Point two, it really does matter just as i ran omb a long, long time ago and you come out of that thinking that no one else in the entire u. S. Government cares much about budgets and that no one certainly cares anything about management and it does matter. The m part of that really matters. If youre going to expand this tool you have to think in terms of where whats the setting for it and i dont mean the place. I think disaster awaits if you dont keep it at a. I. D. And part of that means ive been quite happy with the nature of the relationship but i think its set up to do this, but just underline some points, one as ive already said, a level of patience is required by the entire government that that is simply not natural to the u. S. Government. The second is that these kinds of things are inherently outsiders. Think about it. You create this pot of money and you provide it then to this outside person that some few people in the u. S. Government know but not everybody and those people leave and nobody knows them. Its not really a program thats owned by anybody and so in the end its kind of the red headed step child and the so you spend a great deal of your life trying to integrate the u. S. Government but more than that try to keep actually, i am we are running something thats a program that you guys approved and the something about the outsider status of it has to be altered and the final point i already made this is the money. Particularly if you look at whats happened to budgets and whats happened to discretionary budget over the next five years, any amount of money set out there that isnt hard committed is going to be ripped off by somebody else. So if you want them to have the money, then you got to figure out a way to let them have the money. So patience, the outsider sta s status, and the money. Finally is the elements. They all are going to differ. Jims focus and mine have very similar have lots of parallels but the specifics are quite different and theyre different a little bit because jim and i are different but theyre also different because the context are really different. This has been true of all of them. And so you have to allow for that and as you alter the circumstances of where you put them, if you try to put them in really, really difficult places, by that i mean vastly more difficult than tunisia or egypt or jordan, which would be a wonderful place to start. I know jordan pretty well. I think it would be a great place to have a fund. I think one is actually authorized for jordan. Its the actual creation of one thats the issue. But there are more difficult places than that and more difficult problems you could set them to. Here are the elements. There has to be a recognition that your basically going to be using outsiders. If youre really going to focus on the real problems and issues which is how do private sectors work thats not what governments know. The second is that youre going to have to record those outsiders a very considerable amount of independence and when you really i wouldnt have done this work if in the end we hadnt been given this independence but if you step back and think about it, it is remarkable how much independence we actually have. So but its necessary it is absolutely essential. Every single decision that ive made is one that could have legitimately been contested by 44 other people and taking me a year or years to get done and i dont mean to personalize it. Its my board and its hala but these are not easy decisions. Im quite willing to bear the brunt we are willing to be accountable for what results but if youre beginning to hold us accountable you got to give us the responsibility to make the right decisions. And finally to come back to a dull subject, the money has to actually be committed. Every single time that doesnt happen for me, im the one who has to take the rounds and explain to all the people who work for me, all the businesses who all know since there are no secrets on earth know this instantly and everybody in the effected government why this doesnt really mean that theyre pulling out the rug out from under us, that its unfortunate result. So its committed money, you have to deal with outsiders and you have to understand that youre going to provide them with a fair amount of independence. Great. Turn off your microphones. Me or jim . So whats your take on this, paige . First, old habits die hard just to correct one thing that bow said, the group that came to talk to him about and didnt noel the difference with between debt and equity i didnt imply that. I know. We had helpful congressional staffers that want to put things in regular order to make sure Enterprise Funds actually exist. They might have had a bit of i really shouldnt have said it. Its absolutely not a. I. D. Sorry. Old habits die hard. I would say to follow on what kim said, the formality in the relationship is important. Usaid and these Enterprise Funds have to understand where theres oversight, where theres micromanagement, making sure theres appropriate level of oversight without micromanagement. That goes to both jim and bows point about the outsider status. I think its incredibly important to have mig like a private board that actually can make these decisions without having to get things checked off by the u. S. Government and the u. S. Government also has a hands off relationship in that way so if investment is made and it goes south its not on the u. S. Government. Both those things are important. The Public Private nature of this and to bow and jims point about the private sector being such a large part of how assistance is done now, i think its really important to look at the other Development Programs that have run with the Gates Foundation and with the Rockefeller Foundation where a. I. D. And state have partnered a number of other agencies within the u. S. Government have partnered to leverage each others money to make these more effective Development Programs. The private sectors a Perfect Place for this to be done. I work now and heineken does a lot of our funding because it increases both their ability to local source raw material and the Development Goals of trying to get African Growers to grow the things they can sell not just sell what theyre growing. These things truly leverage each other and it can be done in a private equity and the private sector capacity in a way that Enterprise Fund 2. 0 could be much more effective if it werent just the u. S. Government going it alone. I would say that that would probably be the best and lastly, post liquidation plans. It would be really nice if once this is legally determined how an Enterprise Fund would look, the liquidation plans for when that ends which is past all of our times will not be leaving other People Holding the bag. Especially 150 million thats still sitting in congress to liquidate the russia fund for example, which is money that could be used and its just a political football since the first cnn in 2008 and 2011. Its been sitting for ten years . Yeah, yeah, yeah. Its 150 million which could be put to good use some where, somehow, some way and its just cant be determined. Those post liquidation plans have to be determined in advance before you start something because i think again this will be well past all of our time in 2027 but were going to leave this bag with someone else to clean up and its that should be legislated appropriately. Great. Youve all been really patient. Theres a lot of smart people in this audience. So i want to see a show of hands, i want otherwise im happy to call on folks who know a lot about this. I see david coals here is. Michael leavit is here. So lets start lets get david and michael to start first and then well get some other folks here. And ill get to you too. Hi, david coles with a. Imt d. Id like to hear a little bit more from the board of bow cutter and jim har montana how you wlal the dual mandate, impact versus the financial returns, how do you incentivize your staff to be looking hard at the Development Impact and when you bring cofunders on board is it difficult to explain to them that youre not only about maximizing returns but you have a social and Development Impact youre looking as well . Were going to bunch them all together. I want to hear from michael leavit and jim holmes. Hi. Some of this story actually comes from money from coles, so years ago i was involved with supplying a large number of experts that do Due Diligence for a large number of Enterprise Funds, so for me its what was the difference between them as part of the Lessons Learned, and the conflict between development and return was overwhelming in some of them where it was just totally confused. I would point out none of you gave a report on development. You all talked about return, which is fine but this is my tax dollars. I want development. I realize that jobs are important but theres more to it. So one of this is if theres Lessons Learned one of them is, is it clear and if its not development if its development, how you going to measure that . So thats one thing. Second, staff. Between the funds, the staff disparity in quality was unbelievable. Unbelievable. And that isnt just where they were bad. Third the ceos, some of them thought they were wall Street Investors and some of them thought they were main Street Investors. That would be great if they knew which countries they had been assigned to. So again, im a big fan of the Enterprise Funds but it seems to me one of the ways of looking at Lessons Learned is to look at those 17, not just the four that failed and why were some of them really good. Im sorry just one more thing. The easiest story. We were asked to supply an expert for a big investment. We took a ceo from that industry, stayed three weeks, came back to the big meeting and said, they dont need your money. We costed out the production line and we can save them 2, 3 million a month. Not a problem. We were never called back by that fund because we thought we were there for development and they wanted a good deal. Okay. Jim holmes, yeah. Im not jim holmes. But my names my names don deamasis and i have one comment one comment is, debt and equity is in the eye of the beholder often and so that comment on is debt or is it equity, i know at opec we went often to legally defensible extremes to make a debt instrument into an equitylike instrument. Second point, in terms of the Development Impact i know that one of the big issues that was confronted at opec and at the International Finance corporation involves intermediary Financial Institutions and the esg standards, environmental social governance standards and curious how as in some ways intermediaries here between the u. S. Government and down to the smes how you deal with that issue . A third point i suppose is generally within the u. S. Government, i think of the Enterprise Funds as often times spoke type institutions that come up from time to time responsive to, you know, the Foreign Policy objectives, mostly of the United States combined with development and how there might be a more systematic approach with either Enterprise Funds or combining it with the whole sort of Development Financial strategy for the United States. Okay. Will the real jim holmes stand up please . If you want to handle those first three and come back, thats fine. I apologize. Id like to make a comment or two rather than a question. Jim holmes, i was the Deputy Director for policy planning at the time that the Enterprise Funds were set up, had a very large role in the establishment of it and then i was three years as c coordinator. Point one, Enterprise Funds were never set up as a political tool. They were set up as a policy tool. And a reflection of that is my memory that the first submission from the white house with respect to the establishment of a funding was for a proposal that was called thousand points of light fund and the state department pushed back on that and said this is not reflective of the policy approach, this was reflective of the political agenda, the white house, and they yielded at that time because there was a caud ray of people who are focused upon private sector as a value and a value which could be exported to eastern europe. And therefore the Enterprise Funds were set up to train, to educate and to develop. The first item on the box was not whole grain. It was not make money. The whole item on the box was to train to educate and to develop. No one expected frankly that there was going to be a return and if there was to be a return we negotiated okay, well, then well deal with that then but its not going to be very great. Point two, i think both you daniel and kim understated the importance of the boards. The best example is to check fund which was totally dysfunctional. I had to go to board meetings in order to keep sides apart, in order to take a message from one part of the board to the chairman. It was a blessing when that thing was folded up and put to bed. So i comissate with kim with respect to picking up the pieces but there was nothing there was no mulligan as far as check funding was concerned. It failed and end of point. And thirdly, lastly, no blueprints. The Enterprise Funds were set up without any expectation, without any requirements as far as the board is concerned. Usaid, state department, white house said, okay, these are the people who in whom we have registered faith and confidence for you to do the job and there was minimum oversight and ill tell you there was minimum oversight from the congress as well. Sonny callahan, i used to go up to the hill and talk to him on numerous occasions just to make sure that he felt plugged in to what he was going on there but they really did not right herd on the Enterprise Funds. So when you got to the point where the polish Enterprise Fund was ready to do Something Else besides make money, there was no blueprint for doing it and it required a considerable about three years of negotiations in order to come up with a solution that ended up dividing the thing up. Kim, you can start. I have to thank jim who was my interlochter when i had that job and also my ambassador to estonia and david who is our liaison with the baltic fund. I think theres a false premises which is that there is a difference between profit and development. Im often reminded of the comment that bill gates may have done more for the world by inventing microsoft system than he ever will do with the Gates Foundation. I just completely reject the notion that there is this eternal conflict. I would argue that, in fact, having clear discipline around profit was what allowed us to train 200 to 300 people in how capitalism works which perhaps is our greatest legacy and also provided a sense of discipline within the organization and moreover that, you know, 20,000 mortgages, 20,000 homeowners, leveraging 50 million into 800 million of financing has huge Development Impact and i think that there is this desperate desire to have boxes, development boxes and profit boxes and i dont think the world divides itself that clearly. Im completely confident that if a fund is run well that you can achieve both goals. I do think that as i said we focused on the credit markets because we had very, very immature equity markets and we were focused on preservation of capital in modest returns. So, you know, i can be accused of ambiguity but that was the ambiguity we chose to live in as a way of balancing profit and development and im comfortable with that decision and im comfortable with the results. Im actually going to jump in because the only question i wanted to address was michaels about the development. I agree with what kims saying. I also think you need to look at the fact that 1. 3 billion has been left behind to fund nine different Legacy Foundations in these countries and that is truly where were seeing the Development Impact at this point. I appreciate as jim said this was initially said up to train, educate and develop but i think the private sector link in development was crucial at that time and it remains crucial in the middle east funds as well. There is a Development Component to it just like there is a democracy component and it is not all just private sector for the purpose of private sector private secretary happens when fdi can come in because theres rule of law and democratic principals that exist. I think that actually the language has been tweaked to allow for a Development Impact, although it looks like a private sector one. [ inaudible ]. Ill quarrel with that too. And i started by saying, everyone determined a different Development Impact, so my first comment about our strategic objectives was training our staff. I do want to start by agreeing with kim about the confusion in the development. If you have growing businesses theres no better illustration in the First Development we made which i talked about which is in the Payment Service business. The fact that 25 million egyptians now are able to pay their bills without waiting online three or four hours, that they can borrow a little bit of money, that they can communicate, this changed the quality of life of a lot of egyptians. To me thats development. Now it happens will make money on it so its both but i dont think you exclude one if the other. Having said that, i myself now have begun in the last year to focus a little bit more on development than i did at the beginning because i see the profits that were going to have. Were going to return very significant profits. What does that mean . If we can get a return of 2 or 3 , no other private Equity Investor would take that, we will do it if its something good. My favorite subject is one with my staff has heard me say 100 times its because im involved with a think tank and environment and sustainability. Im determined to find a way to help modify the traffic problem in cairo. That would change the quality of life of everybody and the world bank that is studied in 2010, they found that it cost egyptian economy 8 billion a year, about 4 of the then economy to have this problem. This morning out of curiosity i tracked down a person who did some work on it at the world bank. What is it today . Today . 20 billion. 20 billion of the egyptian economy is impacted because of the congestion the traffic problem has got to be so great. We have a way to solve that because it happens this institution called the World Resources working with the world bank. We work on this in a number of cities and so some day were going to find a way. Thats true development. That would improve the quality of life, reduce the number of accidents, people would get to work on time and it can be done. So what have i done . Im pushing my staff constantly to find the right person who could who really focuses on this in egypt whos not interested in returns but interested in not losing money but interested in doing well. I think it takes a little bit of push from the top but were going to get there. You have to focus on it. You cant just say growing businesses are going to get you there. I think its a very important ke. We talk about this subject all the time. Because most times if youre my background is Investment Banker, we dont necessarily think about development that way but we have a chance now with the profits were making to shift now a little bit and focus on development which could be very good. Our last acquisition was in the Health Care Area and this is another very significant area and in the developing world. I dont want to spent too much time. Other comments or reactions to some of the questions that were put on the table . Bow, do you want to say anythinanythin anything . I dont want to come off too much on what my wife and some of my staff accuse me of being too much of a confrontationalist. I just fundamentally disagree with the way you asked the question and and i kind of i relate myself totally to the points that have already been made. Ill come at it from the other questions youve asked. We have i dont know what the other what the earlier Enterprise Funds did. In the course of taking this on i talked to most of the chairs. I know what jim has done, and i know that that for us the quality of the board and how the board interacts and governance in the board has been an obsession and the quality of our staff, how we choose them, how we evaluate them after theyve been chosen, how we help them build their because these are these are not people who see themselves as aid workers. I mean, our people are people who regard themselves as tunisian professionals who chose to do this. And so we have to its important for us to invest in their futures as well as the deals. So for us, its been it really has been an obsession. And i dont know the degree to which its varied in other places but the chairs that i knew have all said to me that you live or die by the value of your board and the quality of your people. Having now been a professional and having managed staffs for somewhere in the neighborhood of 45 years, i learned a long time ago, you live or die by the quality of the people you work with and by the quality of the boards you choose. I dont know if thats a terribly good answer, but its the way i approach this. But much more importantly is this question of development. Im not where jim is yet. Were going to do fine in terms of the quality of the deals. Tunisia doesnt offer yet the opportunity for the sort of big hit. So well have a very large number of small hits. And our returns over the long run will be very good. So im not yet at the point where i can solve the traffic problems. I wish i could. And i wish jim good luck in doing that. But i dont really see a conflict. And where i really disagree completely, sir, with what you said was the sense that people up here didnt talk about development. I thought the three, four of us actually, that was at the center of what we said. From my point of view, if you do not have a well functioning small and Medium Enterprise sector that produces equitable growth, you do not have development. You do not have anything close to development. I have lived with this problem for god knows how many years. As i said, i was on the board of care for close to 20 years and i chaired it for almost half that period of time. The Development Organizations around the world play what i think are these stupid games between theres some set of metrics that you have and then theres sort of the whole rest of the world called the economy. And no matter what happens in the economy can go to hell as long as you meet your metrics, i just dont believe that. I think that i think that if we if we make a significant success in the creation of equitable growth, sustainable, equitable growth through a healthy small and Medium Enterprise sector, we have done an enormous amount for the development of tunisia and the other countries in which were involved in. And as an answer to the leverage of additional capital, we underwrite our deals at a particular rate of return. And we are going to and we then manage them. And we talk to our investees with respect to that. All of whom are entrepreneurs with respect to their own businesses. And as we now can begin to talk to outsiders, to outside money, its that that we offer. Were not saying to them, make some sort of compromise between kind of the rate of return you want and the rate of return we want, and somehow or noorth, that will work out. Its the rate of return that is available. The tunisias are in a different place. Its not a place where theres oceans of pure private equity begin to flow in. But what so what we can do is provide an example, and i think were beginning to do that, that shows that it is beginning to be possible for kind of real private money to make a sufficient return to come to the place. Okay. Let me just push a little bit on this issue. Are you optimistic about the future of tunisia . You said this is a country thats a democracy, in the arab world. You said to me, what i would really hope for the country and the arab world to go the right way, i hope its tunisia. I hope the other ones do, too, but boy, it would be so great if that country were to continue to have success in democracy. Are you optimistic about the future of tunisia . I am. Tunisia is fragile. And you cant talk to anybody there who wont tell you that. One of the things that i do every time i go, and im going tonight, is i actually have held for me a dinner party that includes all of the heads of almost all of the political parties. Its a fragile place. And the degree to the kinds of negotiations that have to go on to make progress in a country like tunisia are exkreecruciati difficult. It is okay to sit kind of outside a country like that and say they ought to do this and they should do this. I would remind you that we have some difficulties here in the United States coming to consensus on what are important Public Policy programs. And they have them there too. But theyre making it day by day by day. There arent going to be any big kind of startling breakthroughs, but its better now than it was a year ago, and its a hell of a lot better than it was, say, a year after the revolution when there were two political assassinations within six months. One of which occurred when i was there. And you ask tunisiaens today as opposed to 18 months ago, and theyll say it is a lot better than before the revolution. They wouldnt have said that 18 months ago, but theyre beginning to say it. Am i optoptimistic . Yeah. You cant become a part of the country in the way of having a great good fortune to run an Enterprise Fund or to chair one gives you without becoming deeply attached to the country. It is i think the leaders of that country have shown immense courage in what they have tried to do, and immense sort of resoluteness in trying to do it. Do i like everything they have done . No, i dont. But its a tough job. Okay. All right. Im cognizant of the time. I want to call on this gentleman. Get the gentleman a microphone. Thank you. My name is hugh. I spent 32 years in the bank. And i was on the board of the baltic american Enterprise Fund and the czech slovak fund. I would like to go to the question of getting good quality members of the board as well as good quality staff members. Because i spent 32 years in the chase bank, i can assure you that we had very, very fine training. In the array of finance. Because i was retired, i can assure you that there are a number of other retirees who have pensions, who enjoy their pensions, but also look for challenges. And so they are available to you. Not only as members of the board but also as staff members. In the case of egypt, for example, there are a number of chase people who worked in Chase National bank of egypt, and they retired. And they live in new jersey, and they talk about what it was like working in egypt. And theyre available. The same thing with arabic speakers who worked all through the middle east for the chase bank and who are available. My friends in the citi bank, morgan stanley, are available. I just ask you to think about them as potential members of the board, as well as potential staff members. I thank you very much for that. I want to make a comment about Development Finance. We have written a lot over the last five years about Development Finance. I want to just come back to a comment that was made about the issue of development. I do think there is i agree, bow, with your assertion that development is private sector Led Development and we have to think about the economy, and we need growth. I do think, though, that there are different kinds of investors with different kinds of needs. I think were seeing a lot of those things like blended finance. I think the issue of what taxpayers want, a little bit to some of the comments here, are i think we are theres expectations about how we tell those stories and the kinds of impacts that they have. Now, i think if were having a growing economy and we can reduce youth unemployment and make it attractive for investors, that is development. But i do think there are other metrics as well. I think ifc, for example, and some of the other bilaterals will pick somewhat, but cdc for example or fmo, have spent a lot of time trying to tell a larger story, this euro term, additionality, and i think it gets to my friend and colleagues comment about where is the development. I think the question is where is the additionality. Why do we need a tunisian enterprise funt or a baltic Enterprise Fund as opposed to a citi bank or an hsbc. I dont know if theres an answer to it, but i think theres a little bit of a tension in terms of saying why do we have a dfi or why do we have why do we set up a dfi if we dont need it, quote unquote, i do think we need them, but i think that is some of where the question comes from or questions like the one that michael was posing, is that you have different kinds of investors. The whole blended finance or even Impact Investing Movement Comes a little bit at what michael was getting at as well. So i take your point. I agree with you, bow, that we need full growth in an economy, but i do think theres this interesting tension in these institutions thats not resolvable but just sits there as a tension about issues of impact and issues of Economic Growth. I think we want to get both of those. Let me come back to that. I know we dont have a lot of time. Lets first of all talk about blended finance and second of all talk about why this kind of instrument and not citi or hsbc. The first is, thanks in important part to some hints and suggestions by a. I. D. And otherwise and in addition to my own reading and my coos reading, we created what is, i think, one of the only examples in the Development World i know of of a true blended finance for small and Medium Enterprise, where the nature of the financial i mean, in my own view, most of the financial structures devised for small and Medium Enterprise follow the wrong model. They follow a Capital Markets model where 99 of all Small Businesses are never going to go public. So how do you get your money back . You have to have some blend of equity done in a way in which you can get payback. Debt in a way in which the investee can afford to take the debt. Lots of smes in most of the world are way overleveraged because theres no equity involved. And then Something Else. So we have created a royalty based kind of an approach to investment. Theres only one other place in the world that does it, and its a South African firm that we brought in, as a matter of fact, to help us set it up. So i think blended finance really matters a whole lot. That its not that i dont think any of this can do sort of plain vanilla, you get a little equity kind of thing. You just cant do that. The answer, the gut answer to the question of why, well, just hand it over. Hsbcs . Sure, one of the more important Business Books ever written is called the inovatders dilemma. And if you what that basically says is that foreign bodies in the middle of Large Companies are rejected and killed. And it answers the question, two things. Why is it that virtually all of the job creation in developed countries comes from small companies, not Big Companies. For that reason. Why is it that the vast, vast majority of the pathbreaking innovations that have occurred in developed economies are from small companies, not Big Companies . Because Big Companies, while they have their very valuable purpose, and there are lots of very smart Nobel Prize Winning economists who have talked about the necessary mix of big and small. They are not where growth happens. And if you handed these things off, they would kill every one of them off in a minute. Having worked at citi bank in argentina, i agree with you. Kim and paige, i want to give each of you a chance to make 30 or 45 seconds of a closing point and then ill give jim the last word. I was going to give you another example. One of the big problems of sme financing is its not profitable for most large institutions which is why the sme sector is underserved in every single scomae, including this one. Therefore, one of the things we did was by demonstrating that you could underwrite a fiveyear commercial loan, you could monitor it and collect payments, we were able to demonstrate to the existing Banking System that they should in fact get into that business. Once they got into that business, we went to them and said now that youre going to do the fiveyear term loan, well do the noncash pay preferred below you to give growth capital. Its not blended in the sense of a blended security, but it was blended on an ad hoc basis to reflect the companys needs and the state of the Capital Markets. Again, going back to my point, which is that if theres one thing that i would leave with this is flexibility in the execution of the Business Plan is success because no one can predict in advance where the opportunities will be in any country in which an Enterprise Fund is stood up. Thank you. Okay, i want to make one other point. Kim, jim, and bow aint in this for the bucks. Im sure the salary is phenomenal. You have gotten no money out of being the chairs of these things, right, is that correct . Right. So this is public service. This is voluntary public service. So thank you. One thing that gets in my craw i bought into that when we did it, is theres an absolute rule in our piece of the legislation against a penny being spent on alcohol. You can understand that. But tunisia is a real place. Its businessmen and business women have a glass of wine before dinner and that kind of thing. If i take them out. Guess who for five years has bought all of the beer and all of the alcohol . Thanks, bow. The baltics do not have that problem. I want to be clear. Okay, paige. Part of the Public Private partnership, right . I was going to make the same comment. The fact that kim and bow and jim have done this, and i would say the board chairs from most of the other funds really, we are forever indebted as taxpayers to the fact you stepped up and took this on. This is something that has to be recognized if theres to be a Enterprise Fund 2. 0. There are other people out there willing to do it, but its a role Public Private partnership. Thank you for all you have done for that. Can i just ask [ cheers and applause ] okay, jim, you get the last word. Jim, did you ever think that was there a moment where you said gosh, why did i sign up for this assignment . I want to ask three questions. First, just answer that briefly. The first trip i made, we had a schedule meeting with the leadership of the muslim brotherhood. It was late at night. And we were in a state department car, but fortunately, not a state department flag. Or u. S. Government flag. Otherwise, i might not be here. But this car chose to go in front of the protest taking place in the square. And we were stopped. And we did have security in the car. And they said when the tear gas comes, you shouldnt get out of the car because we would not make it to the corner. So we sat for two and a half hours. And i could only look at then my blackberry, which i always try to make some humor out of the whole thing, the first message on my blackberry was that my dentist expected me monday morning at 9 00 for a dental appointment. I thought, god, if i ever get there, ill be so happy. So at that moment a root canal. Yeah. At that moment, i did think lucky im in it for the big bucks. But we did get to the meeting with the leadership. I didnt tell my wife. She would have been furious. But we did get to the meeting. In the first hour, i unloaded on then leadership saying thats the way youre going to treat potential foerb investors coming here, and the funny thing about it, that evening, the brotherhood made a proposal to us that they would like to coventure the Enterprise Fund. And they thought they had the knowledge and skill to do that, so we had a lengthy night, as you may, those meetings go a long time. It was at that moment. I wanted to make three brief comments on more serious matters. I have tried to forget about that moment. Additionality we think about all the time, a very important issue. And so thats i wouldnt make light of that. Directors, thank the gentleman who raised that question. Well certainly keep that in mind. Its interesting that i never expected to get to be a director of the egyptianamerican Enterprise Fund became a bit of a hot ticket. In other words, getting paid nothing, we have more people who are egyptian citizens and u. S. Citizens who when they hear about it have volunteered to do this. And some very good people. A very Important Message for anybody in this audience who is going to some day run an Enterprise Fund, dont pick the highest profile, best known television people. So to speak. Give you an illustration of a wonderful man who is very, very considerate. We talked about it, he is so busy, he wnlt have time to go to meetings but he cared what we were doing. Try to find people who will really come to the meetings and are engaged. Our board is very much engaged. But i like the suggestion made, and well certainly keep that in mind. I also would say if i had to change one thing, i wish they allowed me to be an investor in the Enterprise Fund. That would have sent the right signal, and i would have loved to put my own personal funds into the Enterprise Fund. They dont allow that right now. Maybe both pluses and minuses to doing that in terms of conflicts, but thats another subject. In spite of the one incident i had, i have answered dans question, always felt it was very worthwhile doing. Im fortunate to have been asked. And im fortunate that i made the decision to do it, and i dont regret that in any way. Thank you. By the way, if anybody in this audience has listened to this and thought we could do Something Different, probably any of us, and thought, i would welcome comments or suggestions or emails to that effect. We can all learn by other peoples experiences. So i would encourage you, theres a gentleman in the back waving his hand. I was managing the Robert Simmons former u. S. A. I. D. Service, i was managing the enterprise Investment Funds as well as sitting in on the board meetings, and i was involved in the south africa Enterprise Development funds. And a couple quick thoughts. One thing for paige is, when Going Forward with investment version number two, i think its pror important to bring in Foreign Service people, early on in that discussion. Were in the field, we live there in these communities and we have a good pulse of whats happening inside the communities, and in terms of investment in the economic community. Secondly, i think, and in terms of Lessons Learned, i noticed that a lot of the investments that were made had multipurposed and multifunctions. The board brought up the issues of social capital as well as the financial imperative, which is the rates of return and net present value. This is important to have the people in usaid understand this. Lots of usaid people dont understand this, and it gets very complicated. I was managing five countries, and its hard to communicate that to them in a way that makes sense. Nonethele nonetheless, were still getting a lot of pressure from the embassy to provide some sort of results. So i would have to push back on the investment fund, give us something. What can you give us . Because if they dont give us anything, it makes our job a bit more difficult, substantially more difficult. And finally, i would like to say, i think its important to have folks on the ground early on because i know so many investments deal with so much pressure to put out successes, and lost sight of some of the social needs that affect the communities because the Investment Funds, when i was there, is they would look for the winners, of course, and then they would invest the funds with the winners. For example, if they put in a bank that was having 18 returns, they would do stuff like that. And then they would have returns of 18 , which is a bit misleading, i would argue, and im sure some of you folks would agree. I think some of those thoughts, if you can take that into consideration, that would be quite helpful. Thank you. Okay. All right, please join me in thanking the panel. Thank you. Alabama voters go to the polls today in a special election to fill the u. S. Senate seat vacated by attorney general jeff sessions. Democrat doug jones is running against republican roy moore. We have live coverage as the results come in starting at 9 30 p. M. Eastern on cspan2. You can also follow live on cspan. Org and on the free cspan radio app. Watch cspan this week as Congress Continues work to finalize the republican tax reform bill. Wednesday, the House Senate Conference Committee Meets to work out policy differences between house and Senate Versions of the bill. Live coverage wednesday at 2 00 p. M. Eastern on cspan3. Also wednesday, President Trump speaks at the Treasury Department on tax reform. Watch live coverage on the cspan networks and cspan. Org. Listen live with the free cspan radio app. Watch cspan3 thursday at 10 30 a. M. Eastern for live coverage of the fccs vote on Net Neutrality. The vote is to roll back Net Neutrality rules passed in the Obama Administration and its intended to reduce regu