Can greed cure cancer?
That is MIT Finance Department Chair and world influencer Dr. Andrew Lo's latest hypothesis.
In a forthcoming paper, Lo will argue that the structure of collateralized debt obligations — yes, the same securities that are often blamed for the financial crisis — can be used to gin up the money needed to launch hundreds of trials for effective cancer drugs.
Lo recently outlined his paper in a Yahoo Labs talk.
He works from the following premise: coming up with a single, effective cancer drug costs $200 million spread and takes 10 years.
That does not sound like a good investment.
But if you created one large pool of 150-such asset ventures, your odds of a decent return on investment increase.
So how do you raise $30 billion?
Similar to CDOs, Lo proposes creating "research based obligations" or RBO bonds, that would be divided into tranches with different risk premia (with AAA-rated bonds yielding a lower coupon; riskier bonds, higher).
But what's the underlying asset? Well, Lo is not counting on anxious venture capitalists looking for a 150 percent return to be interested. And besides, the VC market is not nearly big enough.
Rather, Lo intends to tap what he refers to as "patient capital" — pension and money market funds, most of which aren't looking for a return of more than 8 percent or so. And besides, those guys are throwing around trillions of dollars.
Lo sums up the project thusly:
"If we are able to allow people to earn a decent rate of return, with sufficient scale, we can all do well by doing good.
...
"Some people might say, 'Can we afford it?' I think that's asking the wrong question...We should instead be asking, 'Can we really afford not to try?"
Please follow Money Game on Twitter and Facebook.
Join the conversation about this story »
DIGITAL JUICE
No comments:
Post a Comment
Thank's!