MIT Finance Department Chair and world influencer Dr. Andrew Lo’s latest hypothesis.
Premise: coming up with a single, effective cancer drug costs $200 million spread and takes 10 years.
Solution: Use CDOs – “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).
Who can buy these? 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.