ASSET MANAGEMENT - Neuberger Berman

ASSET MANAGEMENT
Free
at
Last
Caught in the bankruptcy of parent Lehman Brothers, Neuberger Berman has returned
to its partnership roots and now faces a challenging investing world.
By Julie Segal PHOTOGRAPHS BY MIKE MCGREGOR
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FEATURE SLUG
CEO George Walker IV:
A new firm, an old structure
I N S T I T U T I O N A L I N V E S T O R . C O M • F E B R U A RY 2 0 1 4
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ASSET MANAGEMENT
After George Walker IV left a 14-year
career at Goldman, Sachs & Co. in 2006 for
Lehman Brothers Holdings, he found himself at ground
zero of the financial crisis. Walker, who had been hired
to run Lehman’s global investment management business, which
included value-focused money manager Neuberger Berman, was
swept into the firm’s mid-September 2008 bankruptcy — the
largest in U.S. history — trapped in meetings with bankruptcy
attorneys, the restructuring firm, creditors’ committees and
Lehman’s corporate deal-making team while struggling to
disentangle his business from the investment bank without killing it.
Walker’s asset management division, which oversaw equity, bond
and alternative investments for outside clients, had nothing to do
with Lehman’s unraveling. But that didn’t matter. Though many
referred to Lehman’s asset management unit as a crown jewel, public
pension clients, including the NewYork City Retirement Systems,
were walking out for fear that any association with Lehman would
provide unending bad publicity.
Walker, however, believed he could find a buyer — and fast.
Creditors, eager to extract cash, approved his plan. But pressure
was intense. Financing threatened to freeze entirely. And without a
deal Walker risked an exodus of clients and employees and the rapid
erosion of the business’ value.
Walker and Neuberger were lucky. Through the summer of 2008,
Lehman had shopped the group in an attempt to raise capital. During that period of relative calm, potential buyers, including some
private equity shops, had performed due diligence.
As a result, Walker and his senior management team, including
Joseph Amato, now Neuberger Berman’s chief investment officer;
Andrew Komaroff, chief operating officer; and Heather Zuckerman,
chief administrative officer, were able to negotiate an agreement for
private equity firms Bain Capital and Hellman & Friedman to buy
Neuberger Berman and fixed income and alternative investments
from the Lehman estate for $2.15 billion.The agreement was signed
on September 29, two weeks after the bankruptcy filing.The entire
operation assumed the Neuberger Berman name.
“No [money management] firm was hit harder, but in the end no
firm exhibited greater stability,” saysWalker, now CEO of Neuberger
Berman, at the firm’s NewYork City headquarters, a few blocks from
Grand CentralTerminal.
But the deal to take Neuberger private had one more plot turn.
Before the buyout could close, equity markets continued to melt
down, triggering contract provisions that lowered the price. That
provision allowed Neuberger management to assemble its own bid.
Under the final $922 million deal announced December 20, 2008,
the Lehman estate retained a 49 percent stake, betting the firm’s
value would rise, and Neuberger employees acquired 51 percent.
Today, Neuberger Berman is independent, with close to 20
percent of its employees owning about 80 percent of the equity. But
for all the heroics required to free the firm from Lehman’s ruins,
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Neuberger Berman finds itself, structurally at least, a midsize private asset manager in a business dominated by behemoths public
and private, such as BlackRock, with $4.3 trillion in assets, or J.P.
Morgan Asset Management, Fidelity Investments and Vanguard
Group, each with over a trillion dollars in assets under management.
Walker is betting that the firm is large enough to be meaningful in the
markets and able to support research and sales teams but small and
agile enough to deliver exceptional returns. “If anything, the bigger
we get, the harder it will be to deliver alpha,” he says.
“It’s unbelievable that an organization that went through that
kind of stress could survive with virtually no turnover or damage to
its performance,” says Douglas Kramer, CEO of New York–based
money manager Horizon Kinetics, a onetime Goldman partner
and a former classmate of Walker’s at the University of Pennsylvania. “It took a certain person to get this organization out of
Lehman Brothers intact. Being private is definitely a distinguishing
factor.There’s room to grow, but they also have the ability to offer
specialty products that can deliver alpha. How do you do that when
you’re a megasize firm?”
WALKER, 44, GREW UP INAWEALTHY ST.LOUIS FAMILY.
His great-grandfather George Herbert W
alker started G.H. W
alker &
Co., a financial firm that later became part of Merrill Lynch & Co., and
went on to run W
.A. Harriman & Co., which became Brown Brothers
Harriman & Co. His son-in-law, Prescott Bush, worked at Brown
Brothers, was elected a senator from Connecticut and had a son,
George H.W. Bush, and a grandson,GeorgeW
. Bush, who both became
“It’s unbelievable that an organization
that went through that kind of stress could
survive with virtually no turnover or
damage to its performance. It took a certain
person to get this organization out of
Lehman Brothers intact.”
— Douglas Kramer, Horizon Kinetics
president of the U.S. ( The latter is Walker’s second cousin.) Walker’s
father later moved back to St. Louis to become CEO at brokerage Stifel
Nicolaus. W
alker himself went to the University of Pennsylvania’s
Wharton School and joined Goldman. In 1994 he helped Goldman
expand investment banking in Germany, then moved to a team building
out Goldman Sachs Asset Management; he made partner in 1998.
In early 2001 he was charged with turning around Goldman’s
hedge fund strategies group, the former Commodities Corp., which
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David Kupperman and Judith Vale: A product mix
of hedge funds and value investing
Goldman had bought in 1997 after the firm launched the careers of
traders like Bruce Kovner and PaulTudor Jones II. Egerton Capital
CEO Jeff Blumberg, who worked with Walker at Goldman, says
Walker’s talent was for coming into tense situations with people
suspicious of the new boss and defusing them. Walker, Blumberg
says, used that same skill to rebuild Neuberger: “He’ll instill his own
beliefs, but he respects the culture of the firm.”
Walker says he took the Lehman job because he wrongly thought
his two bosses at Goldman, Peter Kraus and Eric Schwartz, would
stay for 20 years. In fact, neither remained: Kraus now runs AllianceBernstein, and Schwartz is a private investor.Walker admits he had
to tone down his management style when he came to Neuberger,
where portfolio managers like value guru Marvin Schwartz had been
successfully investing for decades.Today,Walker’s colleagues praise
him for delegating, giving staff autonomy, a framework in which to
work and necessary resources.
The firm he presides over has certainly experienced changes of
its own. Neuberger Berman was co-founded in 1939 by Roy Neuberger, an art collector who made a name for himself shorting Radio
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Corp. of America in 1929 (he died in 2010 at age 107),
and two partners, Robert Berman and Howard Lipman.
The firm launched one of the first no-load mutual funds
in 1950 — the Guardian Fund — and became known for
value investing and managing assets of wealthy individuals.
Roy Neuberger built the firm around investment teams; in
the 1990s the firm diversified into other strategies. After 60
years of private ownership, Neuberger Berman went public
in 1999 just as the technology bubble was peaking, making
many of its managers wealthy.
Four years later Neuberger managers got another big
payday when Lehman acquired the firm for $2.6 billion, part
of a then-popular strategy of financial firms gathering assets
to dampen earnings volatility. Lehman hoped to expand Neuberger
beyond equities and use its global reach to sell products to clients
around the world. Although asset management remained a small
part of the investment bank’s earnings, the plan saw some success,
although Lehman never truly globalized the business. Neuberger did
tap Lehman’s deep pockets and expertise in areas like private equity;
Lehman used Neuberger products, such as money market funds, in
prime brokerage and investment banking and referred clients to the
high-net-worth advisory unit.
The same year Lehman bought Neuberger, the investment bank
acquired the fixed-income business of Lincoln Capital Management
in Chicago and Crossroads Group, a private equity fund-of-funds
manager in Dallas. Lehman grew assets under management to
$279 billion, at a compounded annual rate of 22 percent, between
November 30, 2003, and June 30, 2008. It increased revenue at a
rate of 27 percent for that period.
Today, $242 billion-in-assets Neuberger Berman is thriving, with
products that include traditional long-only fixed income and equities
and alternatives for institutional and retail investors.When Neuberger
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ASSET MANAGEMENT
was under Lehman, the top ten consultants
endorsed 52 investment strategies; today they
favor 109.The firm has signed clients such as
the $26.9 billion Texas Permanent School
Fund, which awarded Neuberger a $900 million private equity mandate that includes
co-investments and secondaries.
And the firm does execute. Of its traditional equity and fixed-income strategies,
88 percent have outperformed their benchmarks gross of fees for the ten years ended
September 30, 2013.
Neuberger boasts a product mix that both
hedge funds and traditional money managers are now chasing.Though the journey out
of Lehman was hair-raising, the investment
bank created a compelling mix of value equity
— Neuberger’s heritage — and high-value
fixed income such as high yield, leveraged
loans and private equity funds of funds,
including secondaries and co-investments.
Without Lehman, Neuberger Berman might
have remained a narrowly focused shop lacking the scale to compete in a market that now
requires research, trading and products for
different environments.“It ended up in a train
wreck, but between the strong Neuberger
culture and all that had been accomplished
during the Lehman years, we knew the firm
could survive,” W
alker says.
It’s also true, as many at Neuberger now
contend, that being privately held and not
part of a large financial organization may be
a competitive advantage. As a private firm,
Neuberger Berman can decide to put all of the
managers’ deferred compensation into Neuberger funds. “We sit across from clients and
tell them, ‘We’re putting our dollars side by
side with you,’ ” says CIO Amato, who headed
Lehman’s Neuberger Berman from 2006 to
the buyout and before that was Lehman’s
global head of equity research. A private Neuberger doesn’t have specific goals like growth
in assets under management, although it
needs to keep key employees happy by growing.The structure also means the firm can give
managers longer time frames and close funds
that have grown too large.
“Private firms get preference in every
respect,” says George Wilbanks, head of
Stamford, Connecticut–based Wilbanks
Partners, an asset management recruitment
firm. “Employees love the structure because
they don’t have the distraction of a parent
company’s priorities or the market driving
short-term decision making. Big investors
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like it because their managers can focus only
on practicing their craft.”
Neuberger stands out as investors search
for ownership structures that can produce
optimal returns and stability. There’s been
a backlash against publicly traded managers that need to produce growth for stockholders and hit quarterly earnings targets.
And bank-owned money managers have
stumbled amid their parents’ woes. Holding
companies like Legg Mason and Bank of
New Y
ork Mellon Corp. scooped up smaller
firms, promising to centralize services like
distribution and keep managers autonomous. The results have been mixed.
Charles Kantor, portfolio manager of
the Neuberger Berman Long Short Fund,
has been at the firm for more than 13 years,
experiencing it as a public company, as part
of Lehman and as a private partnership. He
says that in the years before it went public
Neuberger was perhaps too risk-averse, trying
to protect what it had. Under Lehman the
business didn’t have enough say in its own
destiny. “We didn’t have enough scale in the
boardroom to make a difference under the
performance metrics that mattered to senior
management of the mother ship,” Kantor
says. “Now we have a leadership team that is
pursuing a strategy relevant for our clients,
and management has done a wonderful job
protecting what we have while not being
scared to invest for the future.”
THE FINANCIAL CRISIS AND ITS
aftermath changed many assumptions in
investment management. Even though markets had stabilized by March 2009, many
investors remained skittish. Active managers
were punished for not beating benchmarks,
while alternatives gained in popularity. Low
interest rates drove investors to take more
risk to achieve returns.
Since going private Neuberger has made
aggressive moves to remain relevant. It has
added emerging-markets debt — a gap in
its fixed-income lineup — launched more
hedge fund strategies and expanded private
debt capabilities. It has sold off its money
market funds, which became subject to new
regulations and risks after the crisis.
Neuberger is making a big bet on its
$18 billion in alternative assets. The firm
moved quickly to take advantage of retail
investors’ rising interest in alternatives and
in the possibility that these products could
be offered in defined contribution plans.
(Hartford HealthCare, for instance, recently
added Neuberger’s multimanager hedge
fund to its defined contribution plan.) But
asset managers like Neuberger are trying to
break the code of how to get alternatives to
mainstream retail investors. It’s a wide-open
field: Only about 5 percent of individual
investors have allocations to hedge funds.
Kantor, who had been running an alternatives strategy for institutions, in 2011
launched a fundamental long-short equity
and fixed-income mutual fund designed
to have minimal volatility. The fund, which
has returned an annualized 13.5 percent,
versus its benchmark’s performance of 8.02
percent, since inception, gathered $1.8 billion in two years, one of Neuberger’s most
successful fund launches ever. “Traditional
asset allocation models don’t work and aren’t
designed to work in an environment where
rates are 2.5 percent,” Kantor says. “There’s
never been a better environment to go to clients with solutions like mine, because there
are no other obvious things to do.”
In 2011, Neuberger hired David Kupperman — a physicist who had worked at
the Applied Physics Laboratory at Johns
Hopkins University and met Walker while at
Goldman in the 1990s — to package hedge
fund strategies in a mutual fund format.
Kupperman, who once worked at Carlyle
Group with co-founder David Rubenstein
and at Paloma Partners, says he chose Neuberger for its mutual fund distribution capabilities and understanding of alternatives.
Kupperman has since launched the Absolute Return Multi-Manager Fund. Nine
hedge fund managers run their strategies in
separate accounts specifically for the fund.
Neuberger has full transparency to monitor
potential problems, and investors get daily
liquidity. “Our ideal is to have managers do
everything they do in their regular hedge
funds, with as little modification as possible,” says Kupperman. He believes most
strategies could work well in Neuberger’s
hedge fund structure, with the exception of
distressed debt and some structured credit
investments that are too illiquid.
Traces of Lehman remain at Neuberger.
Anthony Tutrone, global head of Neuberger
alternatives, decided to re-create the business of buying stakes in hedge fund management firms once Neuberger was on its
own.While part of Lehman, the firm directly
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invested in hedge funds, including New
York–based D.E. Shaw Group, using the
investment bank’s balance sheet. Neuberger
no longer has that balance sheet. Instead,
the firm raised $1.28 billion in 2009 in its
Dyal Capital Partners fund, which buys the
stakes, then passes the hedge fund fees back
to investors. Dyal has completed eight transactions, including investments in Capital
Fund Management, Capstone Investment
Advisors, Halcyon Asset Management and
MKP Capital Management.
Michael Rees, chief operating officer of
the alternatives group, says Neuberger had
an edge because under the Dodd-Frank
Wall Street Reform and Consumer Protection Act and its Volcker rule, banks can no
longer invest in hedge funds. “I came at
it from the perspective that hedge funds
wanted to have partnerships with large
firms,” he says. “We had the experience,
and there was no competition.” The hedge
fund firms not only receive a check from
Neuberger but get client introductions and
advice on everything from compliance to
information technology.
So far, the alternatives bet has paid off.
Before going private Neuberger had an effective fee rate of 48 basis points. Now that rate
has risen to 59 basis points, in part because
the firm is offering more complex, high-value
strategies that justify higher fees.
Though active management has gotten
ger’s mutual fund family.The duo epitomize
Neuberger’s culture: autonomy, outspokenness and long tenure. They relish their contrarian views despite the fact that their fund
recently has been lagging the market.
“I’ve been here since ’92, and Bob joined
in ’96,” Vale says. “We both have a lot of dust
on us.” Genesis seeks high-quality businesses
that have little leverage. The strategy does
well by not losing money in tough times but
lags when the market rises.“Companies with
good cash flow don’t make good investment
banking candidates, so the sell side leans
to sexy growth companies,” says D’Alelio.
“This bias is something that only surfaces
over long time periods.”
The Genesis Fund has annual turnover
of 17 percent, a fraction of the industry’s
average, which is over 100 percent. Many of
its investors have been in the portfolio since
the early 1990s.
Perhaps the most surprising success at
Neuberger is the globalization effort. Under
Lehman the firm had $4.15 billion in assets
from non-U.S. institutional clients. At the
end of September 2013, it had $47.6 billion.
Netherlands-based Dik van Lomwel, who
heads distribution in Latin America and in
Europe, the Middle East and Africa, says
the firm has been opening offices and hiring
locals in places like Singapore. Neuberger,
he adds, now operates in 15 countries, compared with seven under Lehman.
“Debt, equity, let’s figure it out.
Investors want partners to help them
do better rather than vendors giving
them a certain product.”
— George Walker IV, Neuberger Berman
tougher as competition has increased and
investors have embraced index funds, CIO
Amato says the firm remains committed to
fundamental research and will continue to
eschew popular products like exchangetraded funds.
JudithVale and Robert D’Alelio comanage
the Genesis mutual fund, a small-cap value
strategy that represents a big part of Neuber-
Neuberger went private just as bond fund
managers faced a particularly tough environment. Interest rates have fallen for 30 years,
and the world that fixed-income managers
once prospered in now seems to have disappeared. Even if rates don’t rise significantly,
there’s no room to fall.
Because Neuberger wanted to be in the
business of providing more complex — less
commoditized — investments, its fixedincome franchise has large doses of high-yield
bonds, leveraged loans and opportunistic
funds. It recently added emerging-markets,
distressed and private debt.That was smart:
Core and core-plus fixed income are expected
to be hit going forward as the bond environment changes.
Andrew Johnson, head of investmentgrade and opportunistic credit, says investors
want opportunistic fixed income: strategies
that deviate significantly from benchmarks
or absolute-return funds that can invest in
multiple asset classes and allow managers
to shift between sectors. T
he firm’s Strategic
Income Fund, an opportunistic fund, has
been growing dramatically. In 2008 it had
$8.2 million in assets; it now has $1.2 billion.
But Johnson concedes that it’s hard to
predict what investors will want from money
managers. “So how persistent is this demand
to be opportunistic?” he asks. “My honest
answer is, I don’t know.”
Many of the industry’s precrisis models aren’t working that well. Walker notes
that investors want Neuberger to invest for
them in emerging markets more broadly
rather than awarding a mandate for either
debt or equity. Clients like the Teacher
Retirement System of Texas and China’s
National Council for Social Security Fund
have forged partnerships with Neuberger,
giving it latitude in how they invest and
asking for high-value advice. “Debt, equity,
let’s figure it out,” saysWalker, who declined
to comment on any clients. “Investors want
partners to help them do better rather than
vendors giving them a certain product.”
Like its portfolio managers, who average
27 years of industry experience, Neuberger
has witnessed many market cycles. It was
private when the industry was young, went
public as asset managers became growth plays
and came under Lehman’s wing when big
banks thought money managers could be part
of financial supermarkets. Next year Walker
will write the last check to the Lehman estate,
severing the firm from the failed investment
bank and providing creditors with $1.5 billion. Neuberger Berman can then pitch itself
as a 75-year-old start-up.
••
Reprinted from the February 2014 issue of Institutional Investor Magazine. Copyright 2014 by Institutional Investor Magazine. All rights reserved.
For more information call (212) 224-3675
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The attached article is being reprinted / redistributed with permission and may not be redistributed without the publisher’s consent. This material is presented solely
for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Any
views or opinions expressed may not reflect those of the firm or the firm as a whole. All information is current as of the date indicated and is subject to change
without notice. Neuberger Berman does not accept any responsibility to update any opinions or other information contained in this document. Neuberger Berman
products and services may not be available in all jurisdictions or to all client types. Investing entails risks, including possible loss of principal. Investments in
hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity
are intended for sophisticated investors only.
All information as of the date indicated, except as otherwise noted. Firm data, including employee and assets under management figures, reflect collective data for
the various affiliated investment advisers that are subsidiaries of Neuberger Berman Group LLC (the “firm”). Firm employee ownership includes employees and
their permitted transferees. Firm history/timeline information dates back to the 1939 founding of Neuberger & Berman (the predecessor to Neuberger Berman
LLC), and highlights key business expansions, including those that resulted from acquisitions of the various affiliated investment advisers that now comprise the
firm. The select clients referenced were selected by the publisher and mandates include various products and services, including investment advisory mandates for
the various affiliated investment advisers that are wholly owned subsidiaries of the firm. It is not known whether the referenced clients approve or disapprove of
any investment adviser for such mandates or any of the investment advisory products and services provided.
Top Ten Consultants Endorsement/Favor Note: Information is as of September 30, 2013 and reflects the total “favorable views” of Neuberger Berman institutional
separate account, alternatives and mutual fund strategy offerings by “top ten consultants” as determined by Neuberger Berman. A “favorable view” includes (i) a
favorable strategy rating, score or other similar designation by a consultant subsequent to a due diligence review; (ii) inclusion of a strategy on a consultant’s
strategy search list or other similar strategy universe by such consultant subsequent to a due diligence review; and (iii) a strategy held by a client of a consultant
that has not been subject to due diligence review by such consultant. A “favorable view” is a Neuberger Berman designation and does not imply any formal
endorsement of Neuberger Berman or any Neuberger Berman strategy by a consultant. The “top ten consultants” are as determined by Neuberger Berman based
assets under advisement and general industry reputation, and as of September 30, 2013 included a total of 11 consultants.
Equity and Fixed Income AUM Benchmark Outperformance Note: For the period ending December 31, 2013, the percentage of total firm equity and fixed income
Assets Under Management (“AUM”) that outperformed the benchmark on 10-yr; 5-yr and 3-yr basis was as follow: Total Equity and Fixed Income AUM: 10-year:
87%; 5-year: 48%; and 3-year: 45%; Total Equity AUM: 10-year: 93%; 5-year: 51%; and 3-year: 36%; and Total Fixed Income AUM: 10-year: 77%; 5-year: 45%;
and 3-year: 60%. Firm equity and fixed income AUM outperformance figures are based upon the aggregate assets for all Neuberger Berman LLC and Neuberger
Berman Fixed Income LLC traditional equity and fixed income strategies that are included in the firm’s institutional separate account (“ISA”), managed
account/wrap (“MAG”) and private asset management/high net worth (“PAM”) composites. The results are based on the overall performance of each individual
investment strategy against its respective strategy benchmark, and results are asset weighted so strategies with the largest amount of assets under management have
the largest impact on the results. As of 12/31/2013, eight equity teams/strategies accounted for approximately 50% of the total firm equity (PAM, ISA and MAG
combined) assets reflected, and eight strategies accounted for approximately 63% of the total firm fixed income (PAM, ISA and MAG combined) assets reflected.
Individual strategies may have experienced negative performance during certain periods of time. Hedge fund, private equity and other private investment vehicle
assets are not reflected in the AUM and product outperformance results shown. AUM outperformance for ISA, PAM and MAG strategies is based on gross of fee
returns. Gross of fee returns do not reflect the deduction of investment advisory fees and other expenses. If such fees and expense were reflected, AUM and
products outperformance results would be lower. Indexes are unmanaged and are not available for direct investment. Investing entails risk including possible loss
of principal. Past performance is no guarantee of future results.
An investor should consider each Fund’s investment objectives, risks and fees and expenses carefully before investing. This and other important
information can be found in each Fund’s prospectus and summary prospectus which you can obtain for free by calling 877.628.2583. Please read the
prospectuses and summary prospectuses carefully before making an investment.
Mutual Funds are not available outside of the United States.
Important information about the principal risks of the Neuberger Berman mutual funds:
All stocks are subject to investment risk, including the risk that they may lose value. The stocks of small- and mid-cap companies are often more volatile and less
liquid than the stocks of larger companies and may be more affected than other types of stocks by the underperformance of a sector or during market downturns.
Compared to larger companies, small- and mid-cap companies may have a shorter history of operations, and may have limited product lines, markets or financial
resources.
Investing in foreign securities may involve greater risks than investing in securities of U.S. issuers, such as currency fluctuations, potential social, political or
economic instability, restrictions on foreign investors, less stringent regulation and less market liquidity. Securities issued in emerging market countries may be
more volatile and less liquid than securities issued in foreign countries with more developed economies or markets, as such governments may be less stable and
more likely to impose capital controls as well as additional taxes and liquidity restrictions. Exchange rate exposure and currency fluctuations could erase or
augment investment results. Funds may hedge currency risks when available, though the hedging instruments may not always perform as expected.
A bond’s value may fluctuate based on interest rates, market conditions, credit quality and other factors. You may have a gain or a loss if bonds are sold prior to
maturity. Bonds are subject to the credit risk of the issuer. High-yield bonds, also known as “junk bonds,” are considered speculative and carry a greater risk of
default than investment-grade bonds. Their market value tends to be more volatile than investment-grade bonds. When interest rates are low, issuers of certain fixed
income securities will often repay the obligation underlying a “callable security” early, in which case the Fund may have to reinvest the proceeds in an investment
offering a lower yield and may not benefit from any increase in value that might otherwise result from declining interest rates. Performance could be affected if
unexpected interest rate trends cause a fund’s mortgage- or asset-backed securities to be paid off earlier or later than expected, shortening or lengthening their
duration. An increase in market interest rates would likely extend the effective duration of mortgage-backed securities, thereby magnifying the effect of the rate
increase on the securities’ price. Unlike mortgage-related securities issued or guaranteed by agencies of the U.S. government or government-sponsored entities,
mortgage-related securities issued by private issuers do not have a government or government-sponsored entity guarantee (but may have other credit enhancement
features), and may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics. These securities potentially offer higher
interest rates than agency-backed, mortgaged-backed securities, but require careful analysis of quality in an effort to protect against risk of nonpayment of principal
and/or interest.
Derivatives may involve risks different from, or greater than, those associated with more traditional investments. Derivatives can be highly complex and potentially
volatile and a Fund could lose more than the amount it invests. Investments in the over-the-counter (“OTC”) market introduces counterparty risk due to the
possibility that the dealer providing the derivative may fail to timely satisfy its obligations. Investments in the futures markets also introduce the risk that a futures
commission merchant (“FCM”) may default on its obligations including the FCM’s obligation to return margin posted in connection with futures contracts.
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ETFs are subject to tracking error and may be unable to sell poorly performing stocks that are included in their index. ETFs may trade in the secondary market at
prices below the value of their underlying portfolios and may not be liquid. Through its investment in ETFs, a fund is subject to the risks of the ETF’s investments,
as well as to those of the ETF’s expenses.
Risks specific to Neuberger Berman Long Short Fund
Short sales involve selling a security a fund does not own in anticipation that the security’s price will decline. Short sales may help hedge against general market
risk to the securities held in the portfolio but theoretically present unlimited risk on an individual stock basis, since a fund may be required to buy the security sold
short at a time when the security has appreciated in value. A fund may not always be able to close out a short position at a favorable time and price. If a short sale is
covered at an unfavorable price, the cover transaction is likely to reduce or eliminate any gain, or cause a loss, as a result of the short sale. There is no guarantee
that the use of long and short positions will succeed in limiting exposure to market movements, sector-swings or other risk factors.
Risks specific to Neuberger Berman Absolute Return Multi-Manager Fund
The Fund’s performance will largely depend on what happens in the global equity and fixed income markets. Shares of the Fund may be worth more or less upon
redemption. The actual risk exposure taken by the Fund will vary over time, depending on various factors including, Neuberger Berman’s methodology and
decisions in allocating the Fund’s assets to sub advisers, and its selection and oversight of sub advisers. The sub advisors’ investment styles may not always be
complementary, which could adversely affect the performance of the Fund. Some sub advisors have little experience managing registered investment companies
which, unlike the hedge funds these managers have been managing, are subject to daily inflows and outflows of investor cash and are subject to certain legal and
tax-related restrictions on their investments and operations.
The Fund’s returns may deviate from overall market returns to a greater degree than other mutual funds that do not employ an absolute return focus. Thus, the Fund
might not benefit as much as funds following other strategies during periods of strong market performance. A sub adviser may use strategies intended to protect
against losses (i.e., hedged strategies), but there is no guarantee that such hedged strategies will be used or, if used, that they will protect against losses, perform
better than non-hedged strategies or provide consistent returns.
Short sales involve selling a security a fund does not own in anticipation that the security’s price will decline. Short sales may help hedge against general market
risk to the securities held in the portfolio but theoretically present unlimited risk on an individual stock basis, since a fund may be required to buy the security sold
short at a time when the security has appreciated in value. A fund may not always be able to close out a short position at a favorable time and price. If a short sale is
covered at an unfavorable price, the cover transaction is likely to reduce or eliminate any gain, or cause a loss, as a result of the short sale. There is no guarantee
that the use of long and short positions will succeed in limiting exposure to market movements, sector-swings or other risk factors.
Event-driven strategies that invest in companies in anticipation of an event carry the risk that the event may not happen or may take considerable time to unfold, it
may happen in modified or conditional form, or the market may react differently than expected to the event, in which case the Fund may experience losses.
Additionally, event-driven strategies may fail if adequate information about the event is not obtained or such information is not properly analyzed. The actions of
other market participants may also disrupt the events on which event-driven strategies depend. Arbitrage strategies involve the risk that underlying relationships
between securities in which investment positions are taken may change in an adverse manner or in a manner not anticipated, in which case the Fund may realize
losses. The Fund’s use of event-driven and arbitrage strategies will cause it to invest in actual or anticipated special situations—i.e., acquisitions, spin-offs,
reorganizations and liquidations, tender offers and bankruptcies. These transactions may not be completed as anticipated or may take an excessive amount of time
to be completed. They may also be completed on different terms than the sub advisor anticipates, resulting in a loss to the Fund. Some special situations are
sufficiently uncertain that the Fund may lose its entire investment in the situation.
Performance Information for Neuberger Berman Long Short Fund
The average annual total returns for Neuberger Berman Long Short Fund – Institutional Class for the 1-year and since inception (12/29/11) time periods ended
December 31, 2013 were 14.52% and 13.45%, respectively. Performance data quoted represents past performance, which is no guarantee of future results. The
investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original
cost. Results are shown on a “total return” basis and include reinvestment of all dividends and capital gain distributions. Current performance may be lower or
higher than the performance data quoted. For performance data current to the most recent month-end, please visit www.nb.com/performance. As of the most recent
prospectus dated 2/28/13, Neuberger Berman Long Short Fund – Institutional Class had a gross expense of 2.59% and a capped expense of 1.70%.
This material has been issued for use by the following entities; in the U.S. and Canada by Neuberger Berman LLC, a U.S. registered investment advisor and brokerdealer and member FINRA/SIPC; in Europe, Latin America and the Middle East by Neuberger Berman Europe Limited, which is authorized and regulated by the
UK Financial Conduct Authority and is registered in England and Wales, Lansdowne House, 57 Berkeley Square, London, W1J 6ER, and is also regulated by the
Dubai Financial Services Authority as a Representative Office; in Australia by Neuberger Berman Australia Pty Ltd (ACN 146 033 801, AFS License No. 391401),
which is licensed and regulated by the Australian Securities and Investments Commission to deal in, and to provide financial product advice for, certain financial
products to wholesale clients; in Hong Kong by Neuberger Berman Asia Limited, which is licensed and regulated by the Hong Kong Securities and Futures
Commission; in Singapore by Neuberger Berman Singapore Pte. Limited (Company No. 200821844K), which currently carries out the regulated activity of fund
management under the Securities and Futures Act (Chapter 289) (“SFA”) and operates as an Exempt Financial Adviser under section 23(1)(d) the Financial
Advisers Act (Chapter 110) (“FAA”) of Singapore; in Taiwan to specific professional investors or financial institutions for internal use only by Neuberger Berman
Taiwan Limited, which is licensed and regulated by the Financial Services Commission (“FSC”) and a separate entity and independently operated business, with
FSC operating license no.:(102) FSC SICE no.011, and address at: 10F, No. 1, Songzhi Road, Taipei, Telephone number: (02) 87268280; and in Japan and Korea
by Neuberger Berman East Asia Limited, which is authorized and regulated by the Financial Services Agency of Japan and the Financial Services Commission of
Republic of Korea, respectively (please visit http://www.nb.com/japan/risk_eng.html for additional disclosure items required under the Financial Instruments and
Exchange Act of Japan). Except for the foregoing, this material is not intended for use or distribution within or aimed at the residents of any other country or
jurisdiction. This document is not an advertisement and is not intended for public use or additional distribution in the following jurisdictions: Brunei, Thailand,
Malaysia and China.
Neuberger Berman Management LLC, a registered Investment Advisor and Broker-Dealer, is the distributor of the Neuberger Berman mutual funds and is an
affiliate of Neuberger Berman LLC. Member FINRA. “Neuberger Berman Management LLC” and the individual fund names in this piece are either service marks
or registered service marks of Neuberger Berman Management LLC.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
© 2014 Neuberger Berman Group LLC. All rights reserved.
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