Q&A with a Lehman Limited Partner

Gary Bland is the State Investment Officer for New Mexico, which has committed approximately $50 million to a pair of Lehman Brothers private equity funds.

peHUB: What’s your take on all this craziness?

GB: The bullies are out there trying to eat everybody’s lunch. They’re trying to steal the lunch money too.

So what do you think should happen?

I think that it’s probably being worked on even as we speak. It’s one of those circumstances where nobody knows what to do. Every piece of news that comes out sounds bad, looks bad, is bad, the world’s coming to an end.

Do you think it’s not as bad as it sounds?

It will sort itself out. Every bull market ends the same way. I’ve been in the business for 40 years. Every time there’s a major turn in the market it always happens in Sept. or Oct. and it’s always the same reason. They put different labels on it. The trouble is that you have a lot of these portfolio managers, these hedge funds, the long only shops, there a well-seasoned 29 years old. We have a pretty good put position on so that helps. We owned a lot of puts going into this.

The money that you have in the Lehman Brothers Merchant Banking Partners III and IV ($50m total), are you worried about that? Have you funded those commitments completely?

Three, yes. For four, I don’t believe that they’ve drawn down the full commitment amount.

Are you tempted to pull your commitment?

This is a separate partnership and Lehman just owns a piece of the general partnership.

So it’s not connected with what’s going on? It’s a stand-alone shop doing its own thing, even if most of Lehman Brothers gets sold?

That’s our understanding of it, yes… The Lehman thing affects people in different ways. Our concern of course is looking to see if we have any counterparty risk and what they’re going to do to some of the papers we might own in other places. We’re still sorting that out but we don’t have a lot of exposure. We have some, but in terms of a $16 billion fund it’s not huge.

What about some of the other companies in the news today, like AIG, ML and WaMu.

Merrill seems to be taken out; WaMu, I don’t think we own much there other than what’s in the index. Our only exposure to most of those is what’s in the index. We run an aggressive but conservative portfolio here. People here are pretty quick to react when they think things are going awry.

It sounds like overall you are not worried. This is just Fall Madness.

It’s the annual Fall Madness. Now, to be clear, this is certainly one of the bigger messes they’ve had in years. There was a general deflating of assets including commodities. This is the hangover from the excesses. Eventually the fed and the CFGC will have to step in with things like position limits. They’ve already asked people to raise money to help AIG, the banks put together a big pool of money. It looks as panicky as anything anybody’s seen yet you take a look at the rest of the index and at the stocks, they’re going down with the index but other than the commodity based stocks, the oil stocks and the financial stocks, the world’s not pretty but it’s not as ugly as the market would indicate. Just think of it this way. This is about as good a combat training as these young puppies can get.

So you’re saying this is a good thing.

From here on out the wizards of Wall Street that still use Clearasil have learned some valuable lessons. Magic is magic. It’s not real.

It’s good that you can look on the bright side of all this.

You have to. If the world ends, who cares?