Lehman Brothers Chairman Ideas on Maximizing Returns in Pools of Liquidity

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Everything revolves around liquidity in the high-stakes world of Richard S. Fuld Jr.

It's basically about how you prioritize opportunities, said the chairman and chief executive of Lehman Brothers Holdings Inc., pointing out that in the past 25 years, no one has come to him with a bad deal. So from the start, he said of evaluating proposals, what I'm looking at is, how do I get any principal back?

Identifying Challenges and Opportunities for Corporations Today in Monday's luncheon by the University of Tulsa Friends of Finance, Fuld kept going back to pools of liquidity as the root of his economics, starting with globalization. That factor led his list of four challenges, followed by consolidation, capital and corporate governance. Lehman's objective in everything, though, is to maximize investor returns.

Everything today is about the investor, he said.

Lehman has enjoyed strong growth under his tenure. Since 2002, Lehman Brothers profits have more than tripled and its stock price has doubled. The company now manages more than $175 billion in assets under trade.

Fuld noted how globalization has brought dramatic change even at the concept level. His company first defined globalization as the ability to buy and sell any asset in any country at any time on any exchange with any currency.

Today it's about how do we move money to the highest-performing asset, he said, no matter where that asset is.

Changing concepts of consolidation, he said, have muddied strategies for increasing returns on equity. As globalization has diminished concerns over national capital, so have trends of consolidation changed ideas on how best to manage assets.

Both involve complexities of capital, in an environment that brings together huge pools of liquidity.

Fuld pointed out how in the early 1970s, Lehman Brothers managed $20 million in capital.

And my boss proceeded to lose $8 million of it in CDs, he said, drawing laughter. That was fun.

Today, Lehman oversees more than $80 billion in capital, with $500 billion on its value sheet.

That takes on even greater weight under the increased burden of corporate governance.

How can you manage a business today, he said, in the light of rules that will be created tomorrow that have the ability to look back and say, 'How did you do that under this? …