Debtors’ assets. The concept of LAMCO alone has been compelling enough, until now, to retain some of the Debtors’ most talented asset managers. Nonetheless, the Debtors have suffered and continue to suffer employee attrition. Employees, once trained, are a significant investment. Employees who have developed considerable skill, expertise and experience in the course of administering the largest chapter 11 cases in history, have begun seeking career opportunities elsewhere, and taking these skills with them. The establishment of LAMCO and the ability to attract third-party business will reduce this attrition. This reduction in attrition will, in turn, reduce the cost to the estates of recruiting and training new employees. Reduced attrition will further reduce indirect costs and investment losses associated with turnover and loss of asset- and portfolio-specific knowledge. This investment is lost when employees leave, taking with them their knowledge and experience in managing the Debtors’ illiquid, often esoteric assets. In replacing old employees with new employees, time is lost and delay is inevitable as these new employees must be introduced to Lehman’s vast and complex portfolios of assets. 18. LAMCO would also make it possible for LBHI and its creditors to realize a return on the investment that has been made in developing LBHI’s asset management teams and infrastructure. LAMCO would encompass the capabilities, infrastructure, and human capital that LBHI has built for the purposes of administering these chapter 11 cases and transfer them to a vehicle that would be capable of preserving and fostering them, and efficiently deploying these asset management capabilities to each of the Debtors up until and beyond plan confirmation. 19. Additionally, transferring its asset management capabilities to a distinct, non-debtor subsidiary will allow LBHI to market these capabilities to third-parties. Like the Debtors, there are many institutions that have been left with legacy assets in the wake of the global financial crisis. Senior officers and employees of Lehman have met with third partieswho have indicated an interest in the asset management expertise of Lehman’s employees. Many of these institutions are not in the business of holding and managing distressed assets; they therefore create “bad banks,” or look to maximize the value of their legacy assets through outsourcing management or selling them. Given that many of these assets are not marked-to- market, capital constraints at these institutions will lead to an increase in asset management opportunities as the negative capital impact from premature sales would be too large. I believe that these circumstances present LBHI with a substantial opportunity. LAMCO will be equipped to enter into agreements to manage assets of third parties for a profit that would inure to LBHI’s benefit, as an equity holder of LAMCO, and ultimately to the benefit of all of the Debtors. It is my expectation that LAMCO will target four types of entities to which to source its third-party services: financial services regulators, global financial institutions such as banks and insurance companies, alternative asset managers – such as hedge-funds or private equity funds – that have failed or are in distress, and other governmental agencies such as municipalities and government- sponsored enterprises. 20. Finally, packaging these asset management capabilities into an independent company will allow LBHI to seek strategic partners interested in purchasing an interest in, or otherwise creating a strategic relationship with, LAMCO. LAMCO’s profits, in turn, would be available to offset the costs already expended in the development of LBHI’s asset management capabilities and infrastructure, to reduce the costs of managing the Debtors’ assets, and to preserve and maximize the Debtors’ estates for distribution to the Debtors’ creditors. LBHI and the Creditors’ Committee are in the process of exploring a strategic relationship with third parties with respect to LAMCO, including the possibility of selling an equity stake in LAMCO to a potential strategic partner, or otherwise entering into mutually beneficial ventures
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