Introduction to the Milken InstituteIsrael Center

Milken Institute Israel Center

To develop and transfer financial innovations toenable economic independence for Israel throughcapital market development with the goal ofestablishing Israel in the top 10 global countriesin standard of living and income by the end of thefirst quarter of the 21st century.

Mission

Actual

At 50% of pre 1973 growth

rate

0095908580757065605550

30000

25000

20000

15000

10000

5000

0

Chained at year 2000 US$

Israel’s Growth Gap: Inadequate Growth, Shared Unequally

Milken Institute Israel Center Objectives:Democratize Israeli Capital: Goal--Israel as a Top Ten Global

Economy

• Accelerate capital market reform—job creation and capitalformation

• Advance Israeli economic independence and economicsecurity

• support regional growth and bridge social gaps

• Financial innovations for social, educational, infrastructureand environmental projects

Method

• Education/Training

• Financial Innovation Workshops

• Demonstration Projects

Research, Develop and Demonstrate Financial Innovations

The GenesisProject

Yarqon River

FinancialTechnologies

Initiatives

Results

• Removing regulatory barriers to the municipal bondmarkets (demonstration project for Tel-Aviv and RishonLe’Zion)

• First regional authority for river basin management(Yarqon River Authority)

• Urban Revitalization Initiative (Genesis Jaffa)

• Financial Reform Proposals (Tel-Aviv/Finance Min.)

• National Microfinance/Small Business Program –Expansion of KIEDF

• Training and supervising Knesset Fellows and KnessetCommittees on securitization, urban revitalization policyinnovations and Community Reinvestment Act

• Student Exchanges on policy/program developmentprojects (IDC-Herzliya)

Financial Technology Transfer Financial Technology Transfer –– ““Best PracticesBest Practices””

• Structured Finance and Secondary Market Development forHome Mortgages and Business Loans

• Capital Market Reforms: Reforms to further local equity anddebt IPO market liquidity and issuance

• Environment Finance: Applications to river basis, park andwater management

• Reinventing Local Government Finance:Municipal/industrial/project finance/real estate finance

• Urban Revitalization

Koret Knesset Fellows Policy Innovations

•Reform of Value – Added Tax•Expansion of SME Financing•Launch of Microfinance Programs•Israeli-Arab Economic Development•Ultra – Orthodox Sector Economic Development•Proposed changes in law to encourage capital investment•CRA for Israel•Financial Reform / Regulatory Reform•Israel Securities International Advisory Board•Launch of Municipal Bond / Project Finance•Urban Economic Development – Jaffa & Jerusalem•Environmental Finance•Deregulation of Broadcast Advertising for SMEs•North Israel Initiative•CLO for Small Business Loans

Financial Technology Transfer: Results & ImpactProject: Municipal Bonds / Infrastructure Finance

•Direct savingsin MunicipalFinancing

•Employment /Real EstateImpacts

•$250 Million Municipal& Project Revenue /Structured Bonds: Tel-Aviv, Ramla, Ra’anana,Yehud, Bat-Yam,others scheduled

•MBA Course – Tel-Aviv University

•Workshops: Tel Aviv Municipality;Finance Ministry; Office ofManagement & Budget TechnicalAssistance & Municipality of Tel-Aviv / Jaffa

•$50k – Milken Family Foundation

•$75k – Tel-Aviv / Los AngelesPartnership

EconomicImpact(Ongoing)

PhilanthropicLeverage

Contribution to MI IsraelCenter (1999 – 2001)

Financial Technology Transfer: Results & ImpactProject: Environmental Finance

•Real EstateDevelopment

•Yarkon ParkRestoration incooperation withCommercialModel for ParkDevelopment

•$150 Million CentralGovernment for RiverRestoration based onplan report

•MBA Course – Tel-Aviv University

•Workshops: Yarkon RiverAuthority (YRA)

•Technical Assistance: EconomicDepartment / Finance Plan (YRA)

•$75K – Tel-Aviv / Los AngelesPartnership

EconomicImpact(Ongoing)

PhilanthropicLeverage

Contribution to MI IsraelCenter (2001 - 2003)

Financial Technology Transfer: Results & ImpactProject: Urban Economic Development

•JaffaRevitalization

•$115 MillionInfrastructure Budget forJaffa

•$2.5 Million MunicipalAllocation or JaffaRedevelopment

•$85 Million OperationalBusiness Plans forBusiness Projects

•MBA Course – Tel-AvivUniversity;

IDC - Hezliya

•Technical Assistance:Municipality of Tel-Aviv / Jaffa

MI Summer Fellows from Tel-Aviv

•$120K – Tel-Aviv / Los AngelesPartnership

EconomicImpact(Ongoing)

PhilanthropicLeverage

Contribution to MI IsraelCenter

Financial Technology Transfer: Results & ImpactProject: Small Business Microfinance

•$49 Million inSmall BusinessLoans

•$ 7 Million in donationsfor Bank Deposits/Guarantees for KIEDF(Partner)

•Research Study

•$94k from Saban for study

EconomicImpact(Ongoing)

PhilanthropicLeverage

Contribution to MI IsraelCenter

Financial Technology Transfer: Results & ImpactProject: Food Insecurity

•Budget supportextended dayschool program

•$16 Million is foodsurplus destructionreallocated to schoollunch program / foodbank

•$50k - Koret Knesset FellowReport on Agricultural PriceSupport / Surplus Policy (GilbertFoundation)

EconomicImpact(Ongoing)

PhilanthropicLeverage

Contribution to MI IsraelCenter

Milken Institute Israel Center:Program Development Needs

• Expand Program of Koret Knesset Fellows

• Expand Inter-University Forum on EconomicDevelopment--Expand Faculty Fellows forteaching Financial Innovation

• Collaboration with Tel-Aviv University, HebrewUniversity, Haifa Univeristy, College of Judaea andSamaria, IDC-Herzliya, College of Management

Milken Institute Israel Center:Program Development Needs

• Create/Maintain Hebrew/English Website forEconomic Development Training/Projects

• Financial Innovations Labs: TargetedDemonstration Projects (e.g., Northern Israel)

• Certification/Degree Program in Financial/PolicyInnovation

• Short Term Training Course for Ministry/LocalAuthorities on Economic Develoopment

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0Max = 10

U.S.

Hong Kong Kuwait

Saudi Arabia

U.A.E.

Israel

Lebanon

Oman

Jordan

Morocco

Iran

Egypt

Syria

Yemen

Challenge: Entrepreneurial FinanceCapital Access Index 2006

Gauging Entrepreneurial Access to Capital

Cu

mu

lati

ve

Cre

dit

Dis

trib

uti

on

(%

)

Cumulative Distribution of Borrowers (%)

Line o

f Per

fect E

quality

Business Credit General Credit

Lorenz Curve:Credit Market Concentration IndicatingInequality

Lorenz Curve:Credit Market Concentration Indicating Inequality

Response:

Includes

• Micro SmallBusiness

• Youth Self-Employment

MicroSmall

Business

Includes

• Leveraged LoanExtension

• RestrictedAccounts

Small BusinessLoan

Includes

• Bank Hapoalim

• Israel Discount Bank

• Bank Leumi

• Mercantile Bank

• Government Fund

Capital AccessProgram LoanLoss Reserve

Includes

•Bank Hapoalim

•Bank Leumi

•Mercantile Bank

•Government

• Fund

Multi-BankSmall Business

CLO

MicroPoverty

Reduction

NIS 20-50K

US$ 4,500-

11,000

NIS 50-500K

US$ 11,000-

110,000

NIS 500 Million

(Mixed)

US$ 110 Million

Includes

• Micro PovertyReduction

NIS 500 Million

(Mixed)

US$ 110 Million

NIS 2,000-

20,000

US$ 450-4,500

Israel Entrepreneurial Finance Initiative

Tel Aviv Jaffa Area : Socioeconomic Index

• Economic levels are lowest in city - 28% are registered with social agencies - Average per capita income one half of levels in the rest of the city - Crime and social fragmentation are onthe rise- Lack of educational, cultural, and social institutions - Absence of stable middle class with young couples to purchase homes

• Jaffa is characterized by a high degree of heterogeneity between Arab and Jews - Severe housing shortage in Arab neighborhoods

• Jaffa has remained an

underdeveloped island in the middle ofthe populous and economicallysuccessful Tel Aviv Metropolitan area

Challenge: Urban Revitalization

JAFFA

Response: Urban RevitalizationJaffa In Transition -The Genesis Jaffa Opportunity

1

2 3

4

5

76

8

1. Jaffa Port – Tourist Potential2. Old City – Already Developed3. Clock Quarter – Development Focus4. Seaside District – Private Seaside Homes5. Jaffa Entrance – ‘Tayelet” Promenade6. Central Jaffa – Residential Focus7. Neve Zedek – ‘Hot’ Neighborhood 8. Ajami – Depressed Neighborhood

The Genesis Jaffa Fund will be part of adevelopment process that has already begun,neighborhood by neighborhood

“Jaffa and also Acre are not flourishing justbecause no one has taken them as a singleproject. If we connect between all theirattractions, purchasing power will not be longin arriving, and they will become like all the portcities to which we flock to in Europe.”

Tamir Ben Shachar Chemanski Ben Shachar Investments Ma’ariv, June 2003

Genesis Jaffa Project A Preliminary Analysis - Our Parameters

Financial Test

12% Return Threshold

The first question for our team:

Could each project offered by the Tel Aviv

Municipality hold its own as a financially

viable stand-alone nvestment?

‘Genesis’ Toolbox

Could projects benefit from the

application of financial innovations used

by Genesis LA?

Can public and private finance bridge

the “financial gap” required for

undervalued areas in southern Tel Aviv?

Purpose

Will the creation of a Genesis Fund for

Jaffa serve the purpose of reinvigorating

this historic area while also meeting the

needs of its current residents?

Fund Structure

Which management/capital structure and

what size of fund would be most suitable

for the launch of a Genesis Fund for

Jaffa?

View from the Sea View from the Mountains “Layer” Scheme

Challenge:Financing Entrepreneurial ProjectsExample of the Master Plan for the Yarqon Riverin the Tel-Aviv Metropolitan Area

Yarkon River Restoration

Developer

Construction

FundEnterprise Fee

Yarqon River

Authority

Investors

$

$

$

$$

Response: Financing Entrepreneurial Projects

Challenge: North Israel

• Relatively high unemployment (11.5 percent, compared to8.3 percent nationally),

• High poverty rates (36 percent below the poverty line,compared to 24 percent nationally)

• Low average income (77 percent of the national average).

• Five years of negative out-migration.

• Residential housing starts declined steadily after 1996 andhave remained flat since 2005.

• Real estate price declines persisted from 2004 to 2006.

• Unemployment rates above the pre-intifada recession rate

• 9,000 Acres of Forest and agricultural lands destroyed

Response: Northern Israel Recovery andRedevelopment Bonds

•Public conduit issues bonds, potentially tax-exempt for investorbenefit•Private sector operator contracts for development and operationof infrastructure:

•Transportation (e.g. Hwy 6 expansion, railroad upgrades and newconstruction)•Urban revitalization in Galilee•Water & waste treatment (e.g. Central Galilee water treatment)•Energy & environment (e.g. Recycling plant)

•Credit enhancement can be used to mitigate risk•Can set up a State Revolving Fund to serve as an infrastructurebank

Steps for Implementation:Structure Credit Enhancement

Financing PoolFinancing Pool

Credit

Reserve

Fund*

Infrastructure

Projects

Small Business

Loan Program

Banks

Insurance Companies

Pension Funds

Corporations

Foundations/ Federations

Religious Institutions

Foundations/ FederationsExisting Government

GuarantorsPhilanthropic

guarantors

Market Rate Investors

Concessionary Investors

Charitable Contributors

Dollars purchase

asset-backed

bonds that

yield market returns

Dollars contributed

to capitalize Reserve Fund

…that yield

below market

returns

Northern Israel Revolving Loan Fund(Koret Israel Economic Development Fund Model)

KIEDF+

Philanthropy Joint Venture

Small Business35-50%

15%/ 16%$15,000-100,000

6.5:1

Micro-Enterprise60%

15%/ 16%$5,000-15,000

6.5:1

Microfinance75%-100%

5%$500-$5,000

20:1

Guarantee Amount (paid to Bank in case of default)

*In one instance, KIEDF subsidizes the interest to the borrower Loan Amount

Leverage

Deposit of Outstanding Credit Guaranteed

Deposit

Credit

1% Subsidy*

Guarantee

BANK

PRI Credit Loan, Grants, Donations,

Investment Dollars

Response: Additional Financing from theChicago Climate Exchange Offset Program

• CCX Offset Program provides greenhouse gasemission reduction credits for reforestation ofdegraded forest land

• CCX Preliminary estimates suggest revenues in therange of $3.5 million over 20 years

CCX Forest and Agriculture Offset Program

CCX Registry

Source: Based on Chicago Climate Exchange “Overview of CCX Market Design,” 2006

CCX Electronic

Trading Platform

CCX Members:

Binding commitments

to cut emissions or

buy project-based offsets

Offset Providers:

Plan trees & reforest

Aggregators

(e.g. Farm Bureau)

Verifiers

(Private Contractors)

In-field

verification

of activity

Bundling and

documentation

of offsets

Missouri State Treasurer’s Presentation tothe Milken Institute

Sarah Steelman

Missouri State Treasurer

April 2007

We Have The Power

• Taxpayer money should never be used to support terrorismand terrorist sponsoring states.

• However, there are hundreds of billions of dollars makingtheir way to state sponsors of terror, especially Iran, throughpublic and private investments in this country. Even thoughAmericans can’t do business in these sanctioned nations,our investments have been a largely unknown and majorsource of critical cash flow for those who would seek toharm the United States.

This should stop immediately.

• Here’s what we’ve done in Missouri:

Victories

Four Major Victories So Far

1) Strict anti-terror investment policies and practices inthe State Treasurer’s Office.

2) The nation’s first public pension anti-terror screeningand divestment policies and procedures with theMissouri State Employees’ Retirement System

3)The nation’s first terror-free public investment fundwith the Missouri Investment Trust

4) The first offering in the nation of a private terror-freemutual fund in a State College Savings Plan (MissouriSaving For Tuition)

Missouri State Treasury

Strict Anti-Terror Investment Policies and Practices in the StateTreasurer’s Office

• Prior to Treasurer Steelman taking office in January 2005, holdings inState Treasury included commercial paper and repurchase agreementsof:

– BNP Paribas, involved in oil-for-food scandal and operations in Iran

– Dutch banks, also involved in Iran

• New Policies Adopted by State Treasurer’s Office upon Steelman TakingOffice

– Prohibits investments in companies that are known to sponsor terrorism oraid the government in countries that are known to sponsor terrorism.

– Prohibits the use of the services of a broker-dealer that is known to sponsorterrorism or aid the government in countries that are known to sponsorterrorism. This includes a broker-dealer’s parent company, subsidiariesand all affiliated companies.

MOSERS

• $20.2 Million out of a $6 Billion portfolio identified byState Treasurer staff in companies operating in US-sanctioned countries

• Examples of companies identified include:

• Arab Bank

• Royal Dutch Shell

• Petrochina

• Chiyoda

• Siam Cement

MOSERS

New Anti-Terrorism Policy Approved by MOSERS Board in July 2005

– Required implementation of a screening process to identify stocks ofcompanies held in non-commingled funds that either:

• Are reasonably known to be operating directly with the governmentor a government-controlled agency in sanctioned nations listed bythe U.S. government

• Engaged in the sponsorship of terrorism

– Results are required to be presented to the Board and the Board makesdivestment decisions

– Staff is required to inquire at all manager due diligence meetings (I)about the risk that terrorism places on the manager’s portfolio, and (II)what efforts the manager is undertaking to screen investments forpossible terrorist connections.

– MOSERS contracts with two third-party consultants to identifycompanies meeting the definitions in Anti-Terrorism Policy

– Staff presents report to Board for divestment decision in executivesession.

Missouri Investment Trust

The Missouri Investment Trust

• State trust created to manage long-term funds on behalf ofcultural groups in Missouri

• $22 million fund held in domestic and international equities

– $6 million was held in a passive EAFE Index fund(international) managed by State Street Global Advisors

• In Sept. 2005, Board adopted an anti-terrorism policy, whichrequired implementation of a screening process to identifystocks of companies held in non-commingled funds thateither:

• Are reasonably known to be operating directly with thegovernment or a government-controlled agency insanctioned nations listed by the U.S. government

• Engaged in the sponsorship of terrorism

MIT Request for Proposals

• On Sep. 20, 2005, the MIT Board authorizedrelease of a Request for Proposal (RFP) for a largecap international fund with an anti-terrorismscreen.

• Four firms responded: Morgan Stanley, StateStreet Global Advisors, UMB Bank and Julius Baer

Screening Process

• Board approved selection of State Street Global Advisors-International Alpha Select - the Nation’s First Terror-Free public fund!

• New screened fund was implemented on July 31, 2006

MO Investment Trust (MIT)

Client_____________________________________________________________________________________________________________________________________________

Works with CSAG to develop customized screen

Receives portfolio data from SSGA and checks against screen

Conflict Securities Advisory Group

Consultant_____________________________________________________________________________________________________________________________________________

Transmits list of screened companies based on customizedscreen developed by MIT

State Street Global Advisors (SSGA)

Portfolio Manager___________________________________________________________________________________________________________________________________________

Screens and rebalances portfolio based on customized screen

Transmits portfolio information to MIT

Investment Returns

7-month total

return

MIT Int’l Alpha Select Fund 19.15%

MSCI EAFE Index 15.25%

__________________________________________

Variance 3.90%

Returns are non-annualized and are gross returns prior tofees. Returns are since inception (7/31/06 through2/28/07)

MSCI EAFE Index versus MIT Int'l Alpha Select Fund

$7,302,107

$6,386,696

$7,525,003

$6,000,000

$6,500,000

$7,000,000

$7,500,000

$8,000,000

Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07

MSCI EAFE Index MIT Int Alpha Select

NOTE: Chart reflects assets based on

gross earnings prior to deductions for fees

Conclusions

What we’re doing now:

Sponsoring resolution in Missouri Legislature to call on all state investments toimplement policies and procedures to make them terror-free

Working with law enforcement and firefighter pension funds to implement policies andinvest in terror-free funds

Working with other Missouri investment pools, funds and systems to help their systemsgo terror-free

Working with groups such as the Center for Security Policy on a national level to educateand incite a nationwide grass-roots movement to make all our investments terror-free,and thereby cut off the money to terrorists and terror-sponsoring governments like Iran

Working with major financial institutions to develop divestment screens for individualportfolios

Working with other state elected officials and legislators to take action

Contact Us

Treasurer - Sarah Steelman

Email: MoTreasurer@treasurer.mo.gov Phone: (573) 522-1139

Deputy Treasurer - Doug Gaston

Email: Doug.Gaston@treasurer.mo.gov Phone: (573) 751-2411

Director of Investments- Mark Mathers

Email: Mark.Mathers@treasurer.mo.gov Phone: (573) 751-8530