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An interview with Christopher Bancroft Burnham
Vice Chairman & Managing Director, Deutsche Asset Management
By Rush Baker IV
(T-bird ’09)


Private Equity In A Struggling Economy

Rush Baker ’09: How will the imminent increase in regulation and oversight coming as result of the recent market collapse affect/impact the private equity business?
Christopher Bancroft Burnham: Primarily with new taxes on carry and perhaps on capital gains. There may also be new burdens on business formation with increased health care costs. Clean tech private equity investment may also be affected by carbon credit regulation, as well as the potential for government incentives for clean tech investment.

Baker: How have the strategies of global financiers changed as a result of the recent market downturn?
Burnham: LEVERAGE is the big word. Too much has brought the financial system to the brink of collapse.  Bucket shops, banned in the U.S. in 1907, returned as a cancer to destroy capital, jobs, and venerable old firms. This, of course, happened due to that Pandoric evil, GREED. LIQUIDITY is the other big word of 2008. The last time anyone saw a bank run was in “It’s a Wonderful Life” with Jimmy Stewart. Strategies have changed because everyone’s risk overlays failed. Time to go back to school and try a new algorithm. DIVERSIFICATION will come back as the only consistent risk management tool. LEADERSHIP—and far greater involvement, both by board and senior management—will also become an absolute requirement of well-run firms. While we spent years looking to improve governance in emerging markets, we will now have to undergo remedial training in the U.S.

Baker: How do you see Deutsche Bank (and the Climate Change Business specifically) moving forward? Can you share any specific strategies Deutsche Bank/Deutsche Asset Management plans to employ that will facilitate growth in the PE sector?
Burnham: We believe that climate change and a shift to renewable energy sources is one of the six or seven great mega-trends of the 21st century. This will take place over the next two or three decades and cost, perhaps, $50 trillion. Private equity will be a particularly advantageous place to be going forward, and there will be increased global demand for well-run private equity funds. The exponential growth in sovereign wealth funds will drive this.

Baker: In your perspective, what is the best route for global markets to find liquidity?
Burnham: I think the U.S. Treasury should have said to the market, “Sell us anything you like. We’ll take it.” Unlike past meltdowns, this was credit- and liquidity-led, not equity- or currency-led. I wish Paulson had brought in Bill Gross on day one. Treasury fumbled the ball for a month. The key issue was firms holding assets that had no bid. How do you value an instrument like that? If there is a Mrs. O’Leary’s cow in this whole mess it was the Commodity Futures Modernization Act of 2000, which both parties in Congress, the Clinton White House, SEC, and Treasury supported, along with all major Wall Street firms. Immediately married with excess greed and leverage bankers became the bucket shops of the 21st century. Liquidity is returning slowly, but bottoms are built over years not months. There is also one other aspect that no one talks about: the unregulated excess speculative construction of new homes and condos. If there is one overarching law in economics it is the law of supply and demand. Finally, I hope we address the moral hazard of non-recourse loans.

About the Interviewee

Christopher Bancroft

CHRISTOPHER BANCROFT BURNHAM
Vice Chairman & Managing Director,
Deutsche Asset Management

Chris Burnham joined Deutsche Asset Management as Vice Chairman and Managing Director in 2006, and was appointed Global Co-head of DeAM’s Climate Change Business in early 2008. He brings over 28 years of leadership experience in finance, government, and the military. He has twice served as the sole fiduciary of multi-billion dollar pension funds, and has extensive private equity fund investment experience.

Most recently, Chris was Under-Secretary General of the United Nations and the highest-ranking American in the UN Secretariat, reporting to Secretary General Kofi Annan. Under Chris’ leadership, the UN created a first-ever ethics office, a first-ever independent audit committee, and a first-ever annual financial and performance report. As a result of Chris’ initiatives, the UN adopted new international accounting standards, a “gold-plated” whistleblower protection policy, and he strengthened financial disclosure and initiated first-ever ethics training.

Before joining the UN, Chris spent four years with the U.S. Department of State as Assistant Secretary of State and Chief Financial Officer for General Colin Powell, and acting Under Secretary of State for Management for Condi Rice. At the State Department, Chris overhauled and implemented a new global financial accounting and reporting system, and integrated results-based budgeting with system-wide performance measures.

Previously, Chris was Vice Chairman of PIMCO Funds Company and President and CEO of Columbus Circle Investors, where he turned around PIMCO’s largest equity subsidiary. Earlier, he served as Treasurer of the State of Connecticut, where he successfully restructured what was then the worst-performing state pension fund in the United States. Before his service as state treasurer, Chris was a corporate finance banker at Advest, focusing on health care, waste to energy, and recycling financings, and with CS First Boston as an energy banker in the Public Power and Corporate Group. He also was elected and served three terms in the Connecticut House of Representatives.

Chris is a graduate of Washington & Lee University, and earned an MPA from Harvard University. He served 24 years in the U.S. Marine Corps Reserve. In 1990, while at First Boston, he volunteered for active duty and led one of the first infantry units to reach and liberate Kuwait City in February 1991. He has won numerous awards for excellence in financial accounting and reporting, and the State Department’s highest award for distinguished public service.

Rush E. Baker IV

RUSH E. BAKER IV
(T-bird '09)

During the summer of 2008, Rush Baker was a Summer Associate in the Climate Change Business Private Equity Group within Deutsche Asset Management. His responsibilities included potential direct investment (firm/technology) valuation and providing an analysis and recommendation on risk and potential growth opportunities to Group Heads; creation of pitch books and verifying their content; assisting the creation of an operational platform of three new investment vehicles; and, performing myriad strategic research projects on the clean technology market. Prior to attending Thunderbird, Rush was an American Diplomat and U.S. Congressional staff member.