Monday 2 February 2009

New Year, New Hurdles for Private Equity

China’s golden years for private equity funds have passed. But PE is still in the game, and some funds may be poised for profit.

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Guanyu said...

New Year, New Hurdles for Private Equity

China’s golden years for private equity funds have passed. But PE is still in the game, and some funds may be poised for profit.

Chen Huiying and Yu Ning, Caijing
1 February 2009

In China’s stock market heyday two years ago, when share prices scraped the ceiling at 40 times company earnings, private equity funds moved fast, bought stakes in companies preparing IPOs, and quickly cashed out, often on the secondary market.

The PE formula was incredibly profitable – until the party abruptly ended.

Investments soured with the global economy in 2008, PE-backed projects failed, and the financial community started questioning the effectiveness as well as the role of PEs in public listings. Moreover, as investments faltered, PE funds started losing their shine, looking less like company reformers and more like opportunists.

Debates over the value of PE are bound to continue in 2009 since, despite the slowdown, equity funds and as well as their investments are expected to continue making contributions to China’s economy. Profit potential and policy support are also on PE’s side.

Risks and Opportunities

A PE project’s life cycle includes four steps: fund-raising, investment, management and an exit. In China, many projects stalled in recent months at either the front or the tail end of the pipeline.

Many PEs bought equities at near-retail prices in 2007 or early ‘08, when the Chinese market was peaking. So in the months since the stock market started slumping in mid-2008, the usual exit channel for PEs – the initial public offering – has nearly dried up. The bear market also created barriers for PEs trying to exit investments by selling recently listed stock.

At the other end of the pipeline, fund-raising has become more difficult and some investors are suddenly too strained for cash to pony up what they pledged.

“Some funds invested in several dozens of companies in the past three years, but none of these equities have gone public,” said the manager of a foreign controlled fund. “At least two years will pass before the IPO market recovers,” and even after public listings resume “there will be a lock-up period, and PEs will have to wait for the best opportunity to exit.

“It will be very hard for PE funds to exit as scheduled,” the manager said, adding that a PE fund’s lifespan is usually about seven years.

But not all PEs are in trouble. Those that built up cash reserves and approached investment decisions cautiously may find that this is a perfect time to raise funds and buy equities. The funds Hony and CDH, for example, have already raised 4.1 billion yuan and 3.5 billion yuan, respectively, for yuan-dominated funds.

Government-approved PEs, including industrial funds backed by the State Council, as well as some foreign counterparts have plenty of ammunition. The Bohai industrial fund, China’s first government-backed PE, raised 6 billion yuan and made two investments over the past two years. American PE heavyweights KKR and Blackstone each have made one investment in China.

More money may be going into PE funds soon. A pilot program in which securities brokers invest in PE funds was recently hatched, and the State Council recently gave a green light to insurance companies to invest in private enterprise equities. PE proposals for commercial banks -- the country’s rich institutional investors -- have been picking up steam.

On the investment side, PEs have shifted their targets to companies tied to industrial upgrading, urbanization, environmental projects and domestic consumption that chime in with the central government’s latest economic stimulus efforts.

Farewell, Golden Years

But for many funds, the good times may never roll again.

On the PE investment failures list are PPG, a shirt manufacturer that was sued over its direct-sales model and debt disputes; retail giant ITAT, whose IPO plan was rejected twice by regulators; Asia Media Co. Ltd., the first Chinese company listed on, and later kicked off, the Tokyo Stock Exchange because of an embezzlement scandal; and the Taizinai dairy, whose founder handed over the reins to PE investors after failing to meet profit expectations.

In addition, several lawsuits between companies and their PE investors highlighted disputes over this investment channel, encouraging the “barbarians at the gate” stereotype that some use to describe PEs.

Failures at some PE-invested domestic enterprises were blamed on cultural entrenchment, suggesting that equity fund managers did not introduce fresh talent and corporate governance as expected. Managers at these enterprises were free to play with capital and often cooked the books, while stakeholders constantly squabbled.

Certain PE strategies have also raised eyebrows. Tainzinai, for example, was affected by a widely used earn-out structure that makes investment payments contingent upon performance targets. The dairy’s founder, Li Tuchun, lost his majority stake to foreign PE funds after he failed to meet an ambitious sales target. In other cases, earn-out structures have pressured company managers to seek further investment cash.

Foreign funds in ITAT invested by issuing stock-convertible bonds. But the retailer’s US$ 1 billion IPO plan for the Hong Kong market was repeatedly rejected, trapping the company in debt. ITAT had to pay interest as well as principal to its PE investors.
Any company with a thin asset base can have trouble repaying a loan, and one that borrows from or sells a stake to a PE fund is no exception. This fact was ignored by some companies in recent years which, because the Chinese market was flooded by liquidity, used their core businesses to guarantee loans for expansions in completely new arenas. But when business turned south, many found themselves overextended, teaching that periphery investments can bring down even the healthiest business.

Hard lessons like that have made PE funds more cautious about investments in China. Their due diligence investigations used to focus on the health of a company and the industry’s potential. But later, most PEs added two items to the investigation checklist: capital structure, and management’s focus on the core business.

“I started to remind our investment team that, besides the numbers behind a firm’s operation, we need to know its financial strength as well as risks outside their books, including guarantees and mortgaged assets,” said Tang Kui, chairman of the PE fund FountainVest China.

Policy Support

PE funds that warm slowly in a growing market cannot be expected to adjust rapidly to a market’s ups and downs. Hu Hongjiang, co-founder of Asia Alternative, a funds group that has invested in Asian PE and venture funds, says PEs move more slowly than the stock market. And when cash runs short, some quietly die.

But in China, some PE investors have proved impatient with these and other industry standards typical in the West, suggesting an immature system. Some have fired PE managers linked to disappointing performances. Others have grabbed the reins to run investments directly.

Fang Xinghai, director general of the governmental financial services office in Shanghai, said China should welcome more foreign managers. He would like the industry to build a group of capable funds managers in China.

Policymakers are encouraging the industry as well. In December, the State Council mentioned PE in a nine-point plan for encouraging the financial industry to play an active role in the government’s economic stimulus effort.

One clause encouraged the use of equity investment to expand company financing channels. A State Council statement December 8 said an equity investment regulation is under discussion. And regulators are in talks to hasten the approval procedure for industrial investment funds.

Anonymous said...

Violent unrest rocks China as crisis hits

The collapse of the export trade has left millions without work and set off a wave of social instability

Michael Sheridan in Hong Kong
February 1, 2009

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

The research was conducted for The Sunday Times over the last two months in three provinces vital to Chinese trade – Guangdong, Zhejiang and Jiangsu. It found that the global economic crisis has scythed through exports and set off dozens of protests that are never mentioned by the state media.

While troubling for the Chinese government, this should strengthen the argument of Premier Wen Jiabao, who will say on a visit to London this week that his country faces enormous problems and cannot let its currency rise in response to American demands.

The new US Treasury secretary, Timothy Geithner, has alarmed Beijing and raised fears of a trade war by stating that China manipulates the yuan to promote exports.

However, a growing number of economists say the unrest proves that it is not the exchange rate but years of sweatshop wages and income inequality in China that have distorted global competition and stifled domestic demand. The influential Far Eastern Economic Review headlined its latest issue “The coming crack-up of the China Model”.

Yasheng Huang, a professor at the Massachusetts Institute of Technology, said corruption and a deeply flawed model of economic reform had led to a collapse in personal income growth and a wealth gap that could leave China looking like a Latin American economy.

Richard Duncan, a partner at Blackhorse Asset Management in Singapore, has argued that the only way to create consumers is to raise wages to a legal minimum of $5 (£3.50) a day across Asia – a “trickle up” theory.

The instability may peak when millions of migrant workers flood back from celebrating the Chinese new year to find they no longer have jobs. That spells political trouble and there are already signs that the government’s $585 billion stimulus package will not be enough to achieve its goal of 8% growth this year.

The American economist Nouriel Roubini said growth figures of 6.8% in the fourth quarter of 2008 masked the reality that China was already in recession – a view privately shared by many Chinese financial analysts who dare not say so in public.

Even security guards and teachers have staged protests as disorder sweeps through the industrial zones that were built on cheap manufacturing for multinational companies. Worker dormitory suburbs already resemble ghost towns.

In the southern province of Guangdong, three jobless men detonated a bomb in a business travellers’ hotel in the commercial city of Foshan to extort money from the management.

The Communist party is so concerned to buy off trouble that in one case, confirmed by a local government official in Foshan, armed police forced a factory owner to withdraw cash from the bank to pay his workers.

“Hundreds of workers protested outside the city government so we ordered the boss to settle the back pay and sent police armed with machine-guns to take him to the bank and deliver the money to his workforce that very night,” the official said.

On January 15 there were pitched battles at a textile factory in the nearby city of Dongguan between striking workers and security guards.

On January 16, about 100 auxiliary security officers, known in Chinese as Bao An, staged a street protest after they were sacked by a state-owned firm in Shenzhen, a boom town adjoining Hong Kong.

About 1,000 teachers confronted police on the streets of Yangjiang on January 5, demanding their wages from the local authorities.

In one sample week in late December, 2,000 workers at a Singapore-owned firm in Shanghai held a wage protest and thousands of farmers staged 12 days of mass demonstrations over economic problems outside the city.

All along the coast, angry workers besieged labour offices and government buildings after dozens of factories closed their doors without paying wages and their owners went back to Hong Kong, Taiwan or South Korea.

In southern China, hundreds of workers blocked a highway to protest against pay cuts imposed by managers. At several factories, there were scenes of chaos as police were called to stop creditors breaking in to seize equipment in lieu of debts.

In northern China, television journalists were punished after they prepared a story on the occupation of a textile mill by 6,000 workers. Furious local leaders in the city of Linfen said the news item would “destroy social stability” and banned it.

At textile companies in Suzhou, historic centre of the silk trade, sales managers told of a collapse in export orders. “This time last year our monthly output to Britain and other markets was 60,000 metres of cloth. This month it’s 3,000 metres,” said one.

She said companies dared not accept orders in pounds or euros for fear of wild currency fluctuations. Trade finance has all but ceased. Some 40% of the workforce had been laid off, she added.

Nearby, in the industrial hub of Changshu, all the talk was of Singapore-listed Ferro China, which exported steel products to customers in Britain, Germany, Korea and Japan. Last October its shares were suspended.

The company is reported to have been weighed down by $800m in debts and, according to the specialist business magazine Caijing, has started a court-or-dered restructuring.

A researcher found the gates closed and under tight guard, 2,000 employees out of work and witnesses who told of company vehicles being seized by impatient creditors. Holders of Ferro China debt include Credit Suisse and Citi-group.

Even in the city regarded as the most entrepreneurial in China, Wenzhou, the business community is reeling. “We estimate that foreign companies have defaulted on payments for 20 billion yuan (£20 billion) owed to Wenzhou firms,” said Zhou Dewen, chairman of the city’s association for small and medium-sized businesses.

“British businessmen are better than other customers because even if they owe money they can be contacted and promise to pay their bills if they can raise the cash but many other foreigners just disappear,” he said.

Slumping demand for consumer electronics in Britain has been blamed for the crisis engulfing the southern city of Shunde, in Guangdong, where a cluster of 3,000 electrical firms has grown up around big exporters like Kelon, a white-goods manufacturer.

“The impact on us from the slowdown in the British market will be huge,” said a manager at Kelon, who asked not to be named.

Shunde is one of the amazing one-industry Chinese towns that has come from nothing to generate 20% of China’s export production of domestic electrical appliances, making 60% of its sales to Europe.

Now the whole province is wrestling with sudden, sharp decline. A researcher who watched officials handling complaints at a local labour bureau reported “class hatred” among workers.

“Why did the boss cut your salary? You must be lazy or absent from work,” an official told one group of petitioners.

“What do you mean? Are you an official of the people’s government or a slave of the bosses?” demanded an irate worker.

Their claim dismissed, the group warned onlookers: “We are thinking of taking extreme action.”

A legal advocate for migrant workers, Xiao Qingshan, told a tale of violent intimidation by the state in collusion with unscrupulous businessmen.

On January 9, Xiao said, 14 security officers from the local labour bureau broke into his office, confiscated 600 legal case files, 160 law books, his computer, his photocopier, his television set and 100,000 yuan in cash.

“That evening I was ambushed near the office by five strangers who forced a black bag over my head and then threw me into a shallow polluted canal,” he said. His landlord has since given him notice to quit his rented home.

Xiao said he was defying bribery and threats to speak to the foreign media because he wants international businesses to know what is really happening in “the workshop of the world”.

Anonymous said...

China official says 20 million migrants lost jobs

By Chris Buckley
Feb 2, 2009

BEIJING (Reuters) - About 20 million Chinese rural migrants have lost jobs as the nation's economic growth has faltered, a senior official said on Monday, promising policies to boost incomes and a softer approach to potential unrest.

Chen Xiwen, director of the Office of the Central Rural Work Leading Group, told a news conference that a recent survey showed 15.3 percent of the 130 million migrants moving from villages to cities and factories had returned jobless to the countryside.

Adding this year's 6 to 7 million new entrants into the rural labor market, Chen added, China will this year have about 25 million jobless and potentially restive rural unemployed.

For the ruling Communist Party, which has yoked its authority to decades of rapid growth, these new rural jobless -- amounting to more than Australia's total population of 21 million -- are a worry, especially if migrant workers find their farmland has been taken for development.

"There's a considerable number of rural migrants who are unemployed. After they return to villages, what about their incomes? How will they live? That's a new factor concerning social stability this year," said Chen.

"Protecting employment and protecting people's welfare is protecting rural social stability."

Chen, who advises national leaders, was speaking a day after the government issued its first big policy document for 2009, which as in past years was devoted to rural development.

That document laid out policies intended to shore up farm incomes, generate jobs for rural unemployed, and extend welfare and healthcare spending in villages.

Chen's estimate of migrant worker unemployment was about double an official projection reported by a Chinese magazine early last month.

NUMBER COULD DOUBLE

Yiping Huang, chief Asia economist for Citigroup, said even that number could double if government stimulus plans fail to offset slowed exports and general gloom.

"It is a big number coming from an official source but a lot of people are expecting even bigger numbers," Huang said of Chen's estimate.

"These are pretty difficult to check reliably, but people are talking about 30 or 40 million eventually."

China has about 750 million people in its countryside -- more than the combined populations of the United States and European Union -- and their incomes and willingness to spend will be crucial to government efforts to boost domestic consumption.

Spending plans to extend the electricity grid, upgrade roads and infrastructure, subsidize domestic appliance purchases, and extend rural access to healthcare and schooling will help boost rural incomes and spending, Chen said.

Farmers will also be helped by policies to lift minimum purchase prices for grains and expand government and commercial reserves of foods, he added.

But some economists are not sure the current stimulus efforts are enough. China's economic growth slumped to an annual 6.8 percent in the last quarter, dragging down the pace of expansion for all of 2008 to a seven-year low of 9.0 percent.

"Our assessment is that growth will be there but the job market will weaken. Basically, it's very difficult to provide that many jobs using the fiscal stimulus measures," said Huang from Citibank.

"Building infrastructure provides some jobs for migrant workers but it's not necessarily the most labor-intensive activity."

POLITICAL THREAT

The rising joblessness is also a political threat.

China sees many thousands of protests and riots every year -- too small to threaten the ruling Party but enough to worry and distract officials -- and state media reports have said the number could grow, stoked by rising rural unemployment.

Factory closures in the far southern province of Guangdong, home to many of the country's exporters, sparked protests and bitter confrontations last year.

"Chen's number (of rural unemployed) sounds about right, but could end up being on the conservative side," said Jian Hui, a labor activist in Guangdong who keeps a close eye on factory closures there.

Many migrant workers there have been told by bosses to take extended vacations after the Lunar New Year holiday, which officially ended on the weekend.

"Some migrant workers have gone home and will decide in a few weeks or even half a year whether it's worth coming out to look for work," Jian said by telephone. "Others have stayed here, because they're afraid of losing the jobs they have."

Social stability hinges on keeping up economic growth, a top Chinese security official said in an essay that appeared on Monday

Chen said local officials have been told to handle "mass incidents," such as protests and riots, with care.

"As soon as sudden incidents occur, leading officials at every level must go to the frontline to explain to and persuade the public," he said.

"In principle, police power cannot be applied."

Anonymous said...

China Outlines Plan to Address Economic Troubles

By Maureen Fan

BEIJING, Feb. 2 -- A Chinese government official has outlined new principles to stem the growing unrest from an economic downturn that has left 26 million migrant workers looking for jobs.

In the event of a mass protest, local officials should go to the "front line," and not hide behind the police, which only triggers an escalation of conflict, said Chen Xiwen, director of the office of the central leading group on rural work, which advises the Communist Party on agricultural issues.

To lessen the threat to stability, officials must also do more to solve land disputes, environmental problems and resettlement issues before they spiral into demonstrations, Chen said at a news conference Monday. Party leaders have been pressed to show that they care about the countryside, where prices for agricultural products have been falling and a widening wealth gap between urban and rural incomes has reached the equivalent of $1,620, $200 more than in 2007.

Demonstrations have broken out across the country recently as citizens protest lack of compensation after factory closings or following illegal land grabs. There have also been protests about the construction of polluting factories near villages and farmland, corrupt local officials who try to cover up their misdeeds and illegal investment schemes that officials have failed to shut down.

"If mass incidents happen, all officials must go to the front line and try to persuade people face-to-face," Chen said. "They cannot hide and push police to the front lines. The police cannot be deployed unless there are truly unfortunate situations where people are beating, attacking, robbing or burning."

After any incident, officials must draw lessons from the conflict, punish those responsible and make new plans to improve their work, Chen said.

There are now nearly 20 million unemployed migrant workers, or 15.3 percent of the total 130 million migrant worker population, Chen said. They are competing with another 6 million who enter the migrant worker job market each year, according to figures from a Ministry of Agriculture survey of 150 villages in 15 provinces conducted before the Lunar New Year last week, when most migrant workers return home for the holiday.

Over the past 20 years, farmers have used outside income to supplement their farming income, making up as much as 50 to 60 percent of their total pay. But for many farmers "that road is blocked this year," said Xu Yong, director of the Center for Chinese Rural Studies at Central China Normal University. "There is a saying in the countryside that to feed the mouth depends on farming but pocket money comes from outside."

Xu could not say whether protests would increase. "During the Spring Festival, most migrant workers went home and had a rest," he said. "After this, they will hunt for jobs. If they can't find any jobs but stay in the cities, it will be easy to generate conflict and instability. April and May will be the most serious time."

At least some migrant workers are taking it in stride.

"It's unavoidable that it will be hard to find a job this year," said Deng Hongshu, 43, from Daping village in Kaixian County near the southwestern Chinese city of Chongqing. "I'm prepared for spending six months or more to find a job."

Deng worked in a leather factory in Shenzhen, just north of Hong Kong, until his factory sent everyone home for a long vacation in early December. A migrant worker for more than two decades, Deng made $1,000 in the second half of 2008. But in the past two months, he has already spent half of last year's paltry income. "I always lose one job at the end of one year and find another job in the next year, so I don't worry about it too much."

Researcher Zhang Jie contributed to this report.

Anonymous said...

China Registers Deficit After Burst of Spending

December's Rollout of Stimulus Measures Reversed Surplus

By J.R. WU
FEBRUARY 1, 2009

BEIJING -- China recorded a fiscal deficit of 111.01 billion yuan ($16.23 billion) for 2008, as government spending surged in the final month of last year when Beijing ramped up its stimulus measures to boost the flagging economy.

Meantime, China's State Council said in its first policy statement of the year that it will take decisive actions to maintain reasonable rural product prices and prevent farmers' income from being hurt by a downturn in both domestic and global economies.

The full-year fiscal deficit reversed the 1.224 trillion yuan in surplus made in the first 11 months of 2008 and also reversed from the surplus recorded for 2007, underscoring the government's rapid rollout of an expansionary fiscal policy to counter a slowdown that pushed growth in the world's third-largest economy to a seven-year low in the final quarter of 2008.

On a nationwide basis, China's fiscal revenue grew 19.5% last year to 6.132 trillion yuan, as fiscal expenditures rose a greater 25.4% to 6.243 trillion yuan, preliminary data issued Sunday by the Ministry of Finance showed.

In December, fiscal spending surged nearly 31% to 1.660 trillion yuan from a year earlier, more than double spending of 525.40 billion yuan in November, according to ministry data. In December, fiscal revenue rose 3.3% to 324.87 billion yuan from a year earlier.

China in November launched a four trillion yuan infrastructure investment-led stimulus package to be carried out through 2010, but frontloaded 100 billion yuan of the plan in the final quarter of last year.

In 2007, China turned in a 173.9 billion yuan fiscal surplus as the economy grew 13% from the year before. In 2008, China's economy grew 9%.

To support farmers, China's government will "decisively prevent a slump in grain production," the State Council said in a statement posted on its Web site Sunday, adding that the employment situation for farm workers is "serious."

Overhaul of the rural sector has been a critical party plank and a key to China's long-term economic development. State media widely reported that China aimed to double the per-capita income of its rural residents by 2020, based on 2008 levels, lift rural consumption and basically eliminate absolute poverty in rural areas by 2020.

The cabinet said in its latest statement that it aims to increase subsidies for farmers and raise minimum grain-purchase prices further this year while also cutting taxes on agribusiness-related loans as part of effort to boost the development of rural areas.

The government will also increase state stockpiles for grain, cotton, edible oil and pork meat, according to the guidelines on rural development approved by the State Council at the end of last year.

Anonymous said...

South Korean Exports Fall by Record, China Manufacturing Slumps

By Kevin Hamlin and William Sim

Feb. 2 (Bloomberg) -- South Korean exports tumbled by a record in January and Chinese manufacturing contracted as the global recession sent growth sliding in export-driven economies across Asia.

South Korea’s shipments fell 32.8 percent from a year earlier, the Ministry of Knowledge Economy said. Manufacturing in China shrank for a sixth month, the CLSA China Purchasing Managers’ Index showed.

Plunging export demand is dragging down economies across Asia and the Pacific, where Japan and Hong Kong are already in recessions and Taiwan, South Korea and Australia are getting closer. South Korean steelmaker Posco will extend production cuts and Rio Tinto Group, the biggest iron-ore miner in Australia, may sell shares to raise cash after commodity prices plummeted.

“Things are getting worse as the global recession spills over to China and other emerging economies,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul.

Japan’s factory output slumped by a record in December from November, the government said last week, and Australia’s manufacturing contracted for an eighth month in January, a report showed today. Australia faces a “collapse in government revenues,” according to Prime Minister Kevin Rudd, as the global and domestic economies slow.

The MSCI Asia-Pacific Index fell 2.1 percent as of 4:10 p.m. in Tokyo, extending its decline to 9 percent this year.

Worst on Record

South Korea’s shipments fell by the most since figures were first compiled in 1957, and at almost twice the pace of December’s decline. The trade report is among the region’s first economic releases for January.

“An outright recession is inevitable,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong. “This is an early indicator for the region, and the drop suggests exports in Asia won’t be good.”

The Chinese purchasing managers’ index rose to a seasonally adjusted 42.2 from 41.2 in December, CLSA Asia-Pacific Markets said today. A reading below 50 shows a contraction.

The Chinese economy will “likely get much worse before getting better,” said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.

Chinese manufacturers shed jobs last month at the fastest pace since the index began in 2004, the CLSA survey showed.

About 20 million migrant workers have lost their jobs because of the nation’s economic slowdown, Chen Xiwen, a senior rural planning official said at a briefing in Beijing today.

Boosting Growth

China is considering extra measures to boost growth, Premier Wen Jiabao said in an interview with the Financial Times, published today. While declining to explicitly rule out a devaluation of the yuan, he said that the government intended to keep the currency stable at a balanced and reasonable level.

Policy makers have stalled gains against the dollar since mid-July and U.S. Treasury Secretary Timothy Geithner said last month that President Barack Obama believes China is “manipulating its currency.”

The nation is rolling out a 4 trillion yuan ($585 billion) economic stimulus package. It has also lowered its key lending rate five times since September, pressured state-owned banks to increase lending, reduced export taxes and agreed to provide support for 10 industries, from steel to autos.

China’s exports fell by the most since 1999 in December and economic growth cooled to 6.8 percent in the fourth quarter, the weakest pace in seven years, from 9 percent in the third.

Anonymous said...

Now Hiring: Lehman

As Bankrupt Firm Winds Down, Gigs There Are Hot Commodity

By PETER LATTMAN
FEBRUARY 2, 2009

It's bankrupt. Its reputation is in tatters. And it has been forced from its plush headquarters building. Yet working for Lehman Brothers Holdings Inc. -- what remains of it -- has become one of the hottest jobs on Wall Street.

That's because Lehman, though a shadow of its former self after selling many of its businesses to Barclays PLC and Nomura Holdings Inc., retains a broad patchwork of assets. It has some $7 billion in cash and more than 1,400 private investments valued at $12.3 billion. Then there's a thicket of about 500,000 derivative contracts with 4,000 trading partners worth some $24 billion.

So for now, Lehman is seen as a relatively secure home for throngs of finance professionals thrown out of work in recent months. It's even become a place for former Lehman CEO Richard Fuld to informally hang his hat.

"We're getting swamped with résumés," says Bryan Marsal, a turnaround expert who is now Lehman's chief executive officer. The inquiries, he says, are from people affiliated with marquee names such as Bank of America, Citigroup Inc., and Morgan Stanley.

"It's just a tough, tough time, and there are a lot of good people out there looking for work."

The wages are not great by past standards. But there are hidden benefits. It could take two years or more to wind down the firm. Such a timeline promises the kind of job security that's a rarity on Wall Street today.

Charged with untangling the mess is Alvarez & Marsal, the New York-based restructuring firm where Mr. Marsal is a co-founder. With 150 full-time employees working on the case, its chief task is to sell off Lehman's remaining assets and maximize recovery for creditors, which are owed more than $150 billion.

Mr. Marsal says the goal is to dissolve the firm in 18 to 24 months from now, though several restructuring experts say that's an aggressive timetable.

Alvarez & Marsal got the gig in September after Lehman's board appointed it to administer the bankrupt company's estate. To carry out the mission, Alvarez & Marsal kept 130 Lehman employees on the firm's payroll. It has also recruited back more than 200 former Lehman employees, and is still hiring staff to handle targeted areas such derivatives and real-estate holdings.

Behind the scenes is Mr. Fuld, the firm's former chairman and chief executive, who was widely vilified when Lehman collapsed in mid-September. Though Mr. Fuld was removed from the payroll on Jan. 1 and relieved of his company-provided black Mercedes, Lehman has agreed to let him keep an office at the firm. He's just around the corner from Mr. Marsal, who says he picks Mr. Fuld's brain about Lehman's business several times a week.

"We asked him to stay if he has nowhere better to go," says Mr. Marsal. "He's been very good about making himself available for questions about Lehman assets."

Through a spokeswoman, Mr. Fuld declined to comment.

Lehman's dismantling is an expensive process. Associated costs run about $30 million a month, excluding fees to lawyers and advisers on the case. Employees are paid a salary -- with modest retention bonus added as "a kiss" says Mr. Marsal -- to entice workers to stay at a place with a limited lifespan.

The assignment is a lucrative one for Alvarez & Marsal, which is charging Lehman hourly fees of $550 to $850 for its top executives working on the case, with rich incentive fees for the firm depending on its recovery for creditors.

Despite Lehman's assured dissolution, executive recruiters say it isn't surprising that the collapsed investment bank has become a desirable place to work.

"This is a well-paying job in one of the worst employment markets in history," says Skiddy von Stade, founder of New York-based executive placement firm F.S. von Stade & Associates. "Through the disposition of Lehman's assets, the employees will have a chance to demonstrate their strengths and skills for opportunities down the road -- possibly with the very buyers of these securities and investments."

Mr. Marsal says compensation is in line with similar jobs on Wall Street, yet far below what it was at Lehman. He and his team are "very, very careful" about the expenses of the firm, which he says are generally lean. "The excess of Lehman was the size of the salaries and the expectations of people with the bonus plan," he says.

Gone are the pay and perks that came with being a top executive at pre-bankruptcy Lehman. Mr. Fuld and his management team sat on the 31st floor of Lehman's former headquarters, a state-of-the-art steel-and-granite building in Times Square. Barclays bought that site and took it over, so now Lehman's command center is a run-of-the-mill office on the 45th floor of the Time-Life building, which long served as Lehman overflow space.

Mr. Marsal and his team are making due without weekly deliveries of fresh flowers and warm chocolate-chip muffins on Fridays -- perks enjoyed by the firm's former brass. Gone too is the executive dining suite where a private chef prepared lunch for Lehman's top executives. Instead, Mr. Marsal and his crew grab a bite in the cafeteria at Time Inc., which has granted access to the Lehman employees.

Henry Klein is part of Lehman's new topsy-turvy reality. A nine-year Lehman veteran, he oversaw a portfolio of investments in India from the firm's New York office. When Lehman failed, Mr. Klein was transferred to Barclays, but says he had little to do there. "I was at Barclays, but my assets were at Lehman."

Mr. Klein left Barclays in mid-November, and then approached Alvarez & Marsal. Today, he's back overseeing the very assets he says he managed at Lehman.

The 46-year-old Mr. Klein is currently focused on a small $36 million real-estate investment in Hyderabad, a large city in south central India. Lehman may continue to back the deal, but also may have to pull its funding. "It's a difficult decision," says Mr. Klein. "We don't have tons of time."

Luc Faucheux, 39, heads up the desk at the bankrupt entity that trades interest-rate swaps and other fixed-income derivatives. "I always wanted this job," laughs the former Lehman staffer who says he had a related, but less senior role. "Be careful what you wish for, because you might just get it."

"Let's face it," he adds. "Given the state of the world we're in, the things I'm learning working on the largest bankruptcy in history are a set of skills that could be marketable for the foreseeable future."

Rather than immediately sell assets into a depressed market, Alvarez & Marsal has opted to retain and manage a chunk of Lehman's holdings.

Last month, Alvarez & Marsal decided to keep a 49% interest in Lehman's money-management business, Neuberger Investment Management, selling the balance to Neuberger's management. It made a similar move with Lehman Brothers Merchant Banking, the firm's flagship private-equity business. The estate also has held on to more than 100 direct stakes in private companies. These include direct investments made alongside Lehman's private-equity clients in large boom-era buyouts such as First Data Corp. and Texas utility TXU Corp.

So far, Lehman has more than doubled its cash reserves to $7 billion from $3.3 billion, in part through the sale of its headquarters to Barclays. It is also raising money by selling off the firm's sizable art collection, whose value Lehman has pegged at roughly $30 million. Some of the photographs and paintings still grace the halls of Barclays and Lehman's Neuberger unit.

Finally, there is a cavalry of corporate jets valued at $164 million. Lehman has already sold six jets, as well as interests in fractional shares service NetJets Inc. for $53 million. Still on the block: Six more planes, including a Boeing 767, and a Sikorsky chopper.

Some of those jets Lehman owned as investments and only four were used for corporate purposes at any one time, according to a Lehman spokeswoman.

"The fleet's been grounded," Mr. Marsal reassured the bankruptcy judge overseeing the case at a hearing last month. "Nobody is flying around these planes and no one is using the helicopter."