Feb 26, 2024 · 1h 16m · capital-allocators
Michael Milken – Innovations in Finance, Medicine, and Education (EP.371)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides sits down with financier and philanthropist Michael Milken to explore the creation of the high-yield credit market, the principles of capital structure and human capital evaluation, and his extensive philanthropic crusade to advance medical research and education.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 15.7% of the talking time here. How this is scored →
Ted as informed peer 3.1 Guest teaching 5.8 Guest disagreement 1.1 Ted pushing back 0.0
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 32:40 Dismissing regression analysis in capital management
Milken strongly dismisses standard academic regression models, arguing they foolishly assume the future mirrors the past in an era of rapid technological disruption.
Hardest push from Ted ▶ 23:32 Challenging private credit as mere extrapolationTed presses Milken to differentiate between genuine modern financial innovations and mere linear extrapolations of the high-yield framework Milken invented decades earlier.
Biggest teaching moment ▶ 45:30 The systemic flaw in rating agency AAA structuresMilken breaks down the historical fallacy of relying on backward-looking rating agencies, citing the 15,000 real estate structures rated triple-A that suffered total losses.
Ted holds their own ▶ 27:39 Reeling off the Drexel alumni empireTed demonstrates thorough command of asset management lineage by rattling off the major alternative firms founded by Milken's former Drexel colleagues.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Childhood Curiosity, Fact-Finding, and Questioning Assumptions | 2 | 4 | 1 | 0 | Ted opens with a broad prompt on Milken's childhood intellectual influences. Milken reflects on questioning adult assumptions through almanacs and bridge party conversations. The exchange is deeply collaborative and autobiographical. | |
| Berkeley Studies, the Watts Riots, and Mispriced Credit | 3 | 6 | 1 | 0 | Milken explains how the Watts riots shifted his focus to finance and how Hickman's corporate bond data revealed that perceived risk was systematically mispriced. Ted acts as an attentive interviewer drawing out historical context. | |
| Wharton Graduate Studies and Inverting Wall Street's Pyramid | 3 | 5 | 1 | 0 | Milken outlines his Wharton years and his role at Drexel fixing securities deliveries while advocating to invert the Wall Street pyramid from sales-driven to research-driven. Ted prompts the narrative flow seamlessly. | |
| Five Missions of High Yield and the 1970s Market Transformation | 3 | 7 | 2 | 0 | Milken delivers an extensive masterclass on the five pillars of high yield, the collapse of the Nifty Fifty, and the 1974 credit turnaround. Ted listens as Milken breaks down how conventional consensus failed in the 1970s. | |
| Securitization Evolution and the Expansion of Credit Markets | 4 | 6 | 1 | 0 | Ted probes whether current private credit expansion represents true innovation or mere extrapolation of earlier models. Milken illustrates how non-investment grade securitization has unlocked value across mortgages, autos, and sports franchises like the LA Dodgers. | |
| Assessing Human Capital and Unconventional Talent Evaluation | 4 | 7 | 2 | 0 | Ted contextualizes Milken's unmatched track record in developing top industry leaders. Milken rejects reliance on backward-looking regression analysis and describes unorthodox hiring methods including late-night card games and detour driving tests. | |
| Corporate Restructurings: Toys "R" Us, Lockheed, and Homebuilders | 3 | 6 | 1 | 0 | Milken narrates historic corporate turnaround cases, emphasizing how hidden value in Toys 'R' Us and deep government dependence in Lockheed allowed distressed debt investors to thrive. Ted facilitates with open story prompts. | |
| Capital Structure Dynamics and Upcoming Debt-to-Equity Restructurings | 4 | 6 | 1 | 0 | Ted asks about optimal corporate capital structure. Milken explains how low-rate debt structures created during 2017-2021 are colliding with higher interest rates, predicting extensive debt-for-equity restructuring in private equity portfolios. | |
| Sponsor Message: Ridgeline | 3 | 6 | 1 | 0 | Following the mid-roll break, Ted asks how capital allocation across private equity and credit will evolve over the next decade. Milken enumerates his six foundational lessons of credit risk, highlighting the danger of lagging agency ratings. | |
| Family Office Strategy and Human-Centric Capital Allocation | 3 | 7 | 1 | 0 | Ted transitions to Milken's family office strategy and medical philanthropy. Milken shares his personal cancer prognosis, his role in doubling the NIH budget, and his perspective on active surveillance and genomics. | |
| Educational Foundations, Virtual Learning, and STEM Innovation | 3 | 6 | 1 | 0 | Milken discusses his decades of educational initiatives, highlighting the drop in US K-12 rankings, the launch of virtual schooling, and the vital contribution of foreign-born STEM scholars. Ted supports the narrative. | |
| Emerging Technologies, Genomic Democratization, and Medical Frontiers | 3 | 6 | 1 | 0 | Milken outlines breakthrough frontier technologies including focused ultrasound, low-cost genome sequencing, and historical gains in global longevity, concluding that the best investor is ultimately a social scientist. | |
| Personal Legacy, Family, and Medical Impact | 2 | 4 | 0 | 0 | Ted asks what Milken is most proud of looking back. Milken highlights family, dramatic drops in cancer mortality, and the enduring influence of alumni he trained. |
Statements from this episode (35)
Milken: Most people hold strong opinions without conducting factual research
“A lot of times you find in education, that your teachers aren't necessarily current on facts, and so you can surprise them, and you know, at a very young age, I had concluded that adults had strong opinions, but very few of them ever did research, and if you a…”
Milken: Historical bond data showed credit risk premiums exceeded actual default risk
“What everyone said about credit was wrong, and there was a book by Bradford Hittman on long-term Corporate bond and investor experience, and the riskiest credits were perceived as the best, and the best credits were perceived as the worst. Whether you were the…”
Milken: Financial firms must make research, not sales, their foundation
“And so my view as the foundation of the firm was research, and we needed to invert the pyramid where research is the foundation of financial investing and advising, then trading, and then if you can trade it and buy it, you can work on selling it.”
Milken: Drexel eventually made markets in 7,000 different securities
“So you had to be a market maker, and we eventually made markets in 7000 different securities.”
Milken: Non-investment grade debt returned 100% unleveraged in 1974
“And so at the end of 74, if you bought a portfolio of non-investment grade debt, by the end of 74, you made 100% on your money, unleveraged.”
Milken: Nifty 50 stocks lost 90% inflation-adjusted over a decade
“Adjusted for inflation, you lost 90% of your money in the next decade.”
Milken: There is fundamentally no difference between private and public credit
“Many people try to separate this, but to me, there's no difference between private credit, public credit, term loans, etc.”
Milken: Roughly 99.5% of companies worldwide are non-investment grade
“99.5 or something of all the companies in the world are non-investment grade debt companies. Very few are investment grade”
Milken: Non-investment grade debt has outperformed higher-rated debt and equities
“Going back particularly to the work that I had done in the sixties, so we're 60 years later now, the rates of return have been significant and have exceeded higher rate of debt and often equity rates of return.”
Milken: Dodgers' discounted TV rights exceeded team's entire purchase price
“If you look at one of the greatest purchases in sports, the Los Angeles Dodgers, for example, they were able to securitize The media stream from an investment grade company, in that case, it was Time Warner Cable, today Charter, for the next 30 years that paid…”
Milken: US human capital is worth roughly $1,500 trillion
“And the human capital in the United States, if it had to be measured, I would say it would be around 1500 trillion. So we're talking 60 to 70 times the GDP of the country.”
Milken: I interviewed job candidates at 4:00 AM to test commitment
“So I often, when I interviewed people, would tell them to meet me at four in the morning or four 30 in the morning. Just to see whether they really wanted it.”
Milken: 72 private equity firms are headed by former Drexel colleagues
“I think there's 72 private equity firms now headed by people that work with me.”
Milken: Annual births in China fell 60% to under 10 million
“But second, they've gone from having 23 to twenty-five million children born a year to less than 10. So they've had a 60% reduction in the number of children born.”
Milken: M&A bankers face misaligned incentives versus long-term investors
“So with an investment banking firm, you have a merger and acquisitions department. They get paid when you do a transaction. So often the people that are the best is getting people to do things so they can get them to do things. And I would often ask them, have…”
Milken: Lockheed's 15-cent debt never missed a principal or interest payment
“And the company eventually survived and built, and the debt that traded at 15 cents on dollar never missed an interest or a principal payment, and today, I believe, is the largest government contractor.”
Milken: Human resources managers will increasingly become corporate CEOs
“I think you're going to find many of the people that were the head human resource manager eventually goes to become CEOs.”
Milken: Private equity owns nearly 50% of America's 20,000 largest companies
“Almost 50% of the 20,000 largest companies in America are owned by private equity.”
Milken: Rising Rates Will Force Debt-for-Equity Restructurings in Coming Years
“And so we're going to see in the next few years opportunities to exchange debt for equity and recapitalize good companies and good industries.”
Milken: Nobody Generates High Long-Term Returns by Guessing Interest Rates
“Second, I really have never met a person over a long period of time who's generated a high rate of return by guessing where interest rates are going. So yes, you're right once. Yes, you're right twice, but not in the long run.”
Milken: Rating Agency Ratings Are Trailing Indicators, Not Forward-Looking
“Three, rating agency ratings are a trailing measure, not a forward-looking measure.”
Milken: Tesla Lacked an Investment-Grade Rating Even Near a $1T Market Cap
“Tesla was not investment grade that even it was approaching a trillion dollars in market cap.”
Milken: Three US companies are AAA, but S&P rated 15,000 structures AAA
“There's maybe three companies in America that are rated triple A. S and P rated in a period of time, 15,000 structures, triple A, almost all of them real estate. And in some cases you lost 100% of your money in a triple A.”
Milken: Over 50% of Economic Growth in Past 200 Years Stems From Public Health
“Most people don't realize when I'm there that the number one driver of economic growth in the last 200 years is public health and medical research, and so more than 50% of all economic growth can be attached to public health and medical research.”
Milken: Moderna dosed first human 63 days after virus sequencing
“It was only seven weeks, 63 days, between the sequencing of the DNA of the virus and the first human being that Moderna gave the vaccine to”
Milken: In 10 years patients will name diseases by mutation, not organ
“And my guess is in 10 years, a person will say, I have an XYZ mutation. They're not gonna say, I have this disease that's been identified in a part of my body.”
Milken: US Added Decade of Schooling by 1960, Now Ranks 31st
“Between 1870 and 1960,
The United States added one year of formal schooling every decade, and by 1960, the U.S. Was the most educated country in the world by two years more than any other country.
Since then, other countries have caught us and passed it, and s…”
Milken: 77% of US AI PhD Students Are Foreign-Born
“50% of every software engineer or scientist in Silicon Valley in the last 30 or 40 years was not born in the United States.
60% of many of our medical research not born in the United States.
77% of everyone in PhD programs in AI not born in the United States.”
Milken: Focused ultrasound is approved for 50 to 60 diseases
“But it's now been approved for 50 or 60 diseases. I have a good friend who had terrible tremors all these years. He went in. When he walked out, he had no tremors. So there's enormous potential. It's been approved for Parkinson's and other diseases.”
Milken: Mother-to-child HIV transmission rate has fallen to 2%
“A woman today has a two percent chance of passing AIDS on to her child. Down from 95% 20 years ago.”
Milken: The best investor is a social scientist
“So I think if you're a good investor, the very first speech I gave on Wall Street in the late sixties was the best investor was a social scientist. And if you ask me again today, I would tell you the best investor is a social scientist, understanding where the…”
Milken: CRISPR therapies will be approved and eliminate sickle cell disease
“Sickle cell anemia and other things using CRISPR is going to be approved. You're going to eliminate this disease. Eliminate it.”
Milken: China now has the world's largest diabetic population
“We can see what's happened in China, where almost 40 years ago, no one had diabetes, and now they have the most people with diabetes in the world.”