How Michael built the fortune
Michael Milken earned his wealth by turning bonds issued by companies without investment-grade credit ratings into a large and liquid market. As a student he had studied research showing that a diversified portfolio of such bonds historically paid investors more than enough to cover the defaults. At the investment bank Drexel Burnham Lambert he put that idea to work, first trading these securities and then helping companies issue new ones to raise money that traditional lenders would not provide.
He moved Drexel's high-yield department from New York to Beverly Hills in 1978, and by the mid 1980s the operation dominated the market. The bonds financed fast-growing companies in cable television, casinos, telecommunications and other industries, and they also funded many of the leveraged takeovers of the era. Milken's compensation, tied to the profits of his group, made him one of the highest paid people in American finance.
The period ended in scandal. Federal prosecutors indicted him in 1989 on racketeering and securities fraud charges. In 1990 he pleaded guilty to six securities and reporting violations, paid large fines and settlements, and was sentenced to prison, serving about two years. He was barred for life from the securities industry, and Drexel collapsed into bankruptcy in 1990.
Supporters argue that the market he built gave thousands of mid-sized and growing companies access to capital they could not obtain from banks, and that many well known businesses were financed this way. Critics point to the excesses of the takeover boom and to the conduct for which he was convicted. Both views remain part of how his career is discussed.
Companies and holdings
Since leaving prison Milken has built his activities around investments and a family of nonprofit organisations. With his brother Lowell and Larry Ellison he co-founded Knowledge Universe in 1996, a company that invested in education businesses, including early childhood centres and training providers. His personal fortune is held mainly in private investments and in the family's holdings.
His best known institutions are nonprofits:
- The Milken Institute, an economic think tank founded in 1991 and known for its annual Global Conference
- The Prostate Cancer Foundation, created in 1993
- The Milken Family Foundation, which runs the Milken Educator Awards
- The Milken Center for Advancing the American Dream in Washington
The Milken Institute's Global Conference in Beverly Hills has become one of the best attended annual gatherings of investors, executives and policymakers, and the institute publishes research on capital markets, health and regional economies. Milken chairs the institute and remains closely involved in its programmes.
Early life and career
Milken was born on 4 July 1946 in Encino, California, and grew up in the San Fernando Valley, where his father was an accountant. He studied at the University of California, Berkeley, graduating in 1968, and then earned an MBA from the Wharton School of the University of Pennsylvania.
While at Wharton he began working for Drexel Harriman Ripley, a predecessor of Drexel Burnham Lambert, and joined the firm full time around 1970. His early research on lower rated bonds gave him the conviction that powered the rest of his career.
He became known at Drexel for an intense work ethic, starting his days before dawn to match East Coast market hours from California, and for building a tight network of investors who bought the bonds he underwrote.
Philanthropy and public life
Milken was diagnosed with prostate cancer in 1993 and responded by founding CaP CURE, later the Prostate Cancer Foundation, which has funded a large body of research and helped speed new treatments. He has also supported medical research more broadly through FasterCures, a centre of the Milken Institute, and the Milken Institute School of Public Health at George Washington University carries his family's name after a major gift in 2014.
In education, the Milken Family Foundation, created in 1982 with his brother Lowell, has given unrestricted cash awards to thousands of teachers since 1987. In February 2020 President Donald Trump granted Milken a full pardon, though the pardon did not lift his industry ban.