Gary Parr Hits a Bogie on Bear

Ask Gary Parr whatever you want about sovereign wealth funds. Just don't ask him about what happened to Bear Stearns.

Actually, the Lazard vice chairman did tell a roomful of finance types this morning what happened to Bear, but he pleaded "ongoing legal proceedings" to refrain from offering any new detail or insight. Lazard advised Bear Stearns during its spectacular collapse in early March, and many investors questioned why Lazard first stood behind the $2 per share price as a fair one, only to change its mind a week later and decide that $10 per share was somehow more fair.

Speaking at a conference on private equity sponsored by The Deal, Parr (profiled here) repeated the oft-used phrase to describe Bear's final days. "There was a run on the bank," he said. Seventeen billion dollars evaporated in 48 hours simply because investors decided they didn't want to hold the Bear Stearns name any longer. "It was quite extraordinary," Parr said.

Yes, it was. Tell us something we didn't already know.

Parr was invited as a keynote speaker to the conference to talk about sovereign wealth funds, and he did share his insight about what the future holds for the ballooning piles of cash controlled by governments in Asia and the Middle East.

No matter what direction oil prices go, sovereign wealth is going to dramatically expand in the coming years, from $3 trillion today to as much as $14 trillion by 2012, Parr said.

But don't expect to see inflows into U.S. companies to be a voluminous as they were during the fourth quarter of last year, when banks like Merrill Lynch, Citigroup, and Morgan Stanley received windfalls. After sovereign wealth funds pumped $44 billion into the U.S. during that quarter, they scaled back to $13 billion during the first quarter, and Parr expects that level to remain steady for the rest of this year.

It's true that some of them have gotten burned. Parr said that of the fourteen sovereign biggest deals last year, only two are "above water" today.

But Parr made the point that the fund managers quickly become more sophisticated as the credit crisis expanded, and they increasingly demanded structured investments like convertible stock instead of common stock, in order to minimize their risk. Indeed, in recent weeks, most of the major capital raises by financial institutions have come from the public markets through the issuance of new stock or debt.

Over the longer term, Parr said, sovereign wealth funds will evolve to become more like alternative asset managers themselves. They've invested in the likes of Blackstone, Apollo, and Och-Ziff not just to realize a return on their investments, but to learn about how to make them on their own in the future.

by Megan Barnett