A Bear Stearns-like meltdown in January?

That’s what the star banker who advised the fallen Wall Street bank on its sale to rival JPMorgan says would have happened if the much reviled sovereign wealth funds had not stepped in with so much cash last year.

“Imagine where we would have been in our financial system, if in November, in December, in January, sovereign wealth funds hadn’t been there?” said Gary Parr, deputy chairman of Lazard. “We would have been hit with a Bear Stearns type situation three months earlier.”

Sovereign wealth funds have reduced their level of investments significantly due to the confluence of factors, including a backlash by shareholders of companies in which they invested and a pushback by government, Parr said at The Deal’s Fifth Annual Private Capital Symposium.

Investments by sovereign wealth funds fell to about $13 billion in the first quarter, down from $44 billion in the fourth quarter of last year, Parr said. The funds, which had more than $2.8 trillion in 2007, are growing fast.

Parr declined to go into details of what happened around the fire sale of Bear Stearns earlier this year, citing litigation around it.

“In the span of two days … money market funds decided, ‘I don’t want to hold this name anymore,’” Parr said. “None of us have ever seen anything like this.”

“There was a run on the bank,” Parr said. “It was quite extraordinary.”

Photo credit: Reuters