Life After Lehman: Neuberger Berman Marks First Year of Freedom

Independence comes at a cost as bankruptcy estate retains 48% interest in asset management firm

In a celebration of its first full year of independence from the bankrupt Lehman Brothers, Neuberger Berman held a midyear outlook luncheon on Tuesday, June 8, in its corporate headquarters in midtown Manhattan. And while the outlook's subject was the overall U.S. economy, it could well have been the asset management firm itself.

"The memory of what we've been through is still very fresh," said Arthur Moretti, Neuberger Berman's senior portfolio manager of the core equity team, during a question-and-answer period. "Caution may be a good thing."

The road to self-ownership is not complete. While Neuberger Berman's portfolios, research, and operating functions today remain intact and self-managed, 48% of the firm is owned by the Lehman estate. Though caution may be key during this recovery period, the good news is that the 52% of the assets owned by the firm have doubled in value to about $2 billion in May 2010 from $1 billion in May 2009. Neuberger Berman paid $1 billion to set itself free from Lehman.

"The firm will continue to be employee-owned, and we hope even more so going forward," said Neuberger Berman Chairman and CEO George Walker during comments at the luncheon. "We are excited to be an independent, debt-free, self-controlled company."

Neuberger Berman, which employs 1,700 people on several continents and manages a wide range of mutual funds and other investments, saw net inflows of $2.9 billion for the quarter ended March 31. Client assets under management (AUM) totaled $180 billion as of that date, compared to $160 billion of assets on November 30, 2008.

Having served as Lehman Brothers' asset management unit from 2003 to 2008, Neuberger Berman was on hand to see the sudden demise of its parent company in September 2008. Under the terms of the liquidation overseen by the U.S. Bankruptcy Court for the Southern District of New York, Neuberger Berman was sold to its management team on December 3 of that year.

At the time of the bankruptcy, Lehman said that Neuberger Berman LLC and Lehman Brothers Asset Management would continue to conduct business as usual and would not be subject to the bankruptcy case of the parent company, according to a September 16, 2008, article in The Wall Street Journal. Back then, the Lehman estate retained a 49% common equity interest in the firm, which means that Neuberger Berman has since reduced creditors' stake in the firm by one percentage point to the current 48%.

Traces of Lehman and Neuberger Berman's glorious, pre-bankruptcy past could be seen on the walls of the conference room where the June 8 luncheon was held. A collection of artwork put together by the two companies over the years still resides at Neuberger Berman's headquarters--though the most valuable pieces in the collection won't be there much longer. In its continuing quest for full independence, the asset management firm is cooperating with the Bankruptcy Court to sell an estimated $10 million of modern artwork at a Sotheby's auction scheduled for September 25. However, the lion's share of the collection, about 90% of less valuable work, will remain at the company's headquarters.

The longevity of Neuberger Berman's founder augurs well for the firm. This July 21, Roy Neuberger will turn 107 years old. Born in 1903 in Bridgeport, Connecticut, Neuberger has lived to see his company survive many recessions since its founding in 1939 and his launch of the Guardian Fund in 1950. Guardian (Nasdaq: NGUAX), now a $1 billion fund, has been managed since December 2002 by Moretti and his team.

"It is wonderful to see the firm independent once again and moving forward with a continuing commitment to common-sense investing and putting its clients first," Neuberger said last year after the firm purchase by an employee group consisting of portfolio managers and senior executives.

Read about the Lehman Brothers bankruptcy from the archives of InvestmentAdvisor.com.

Reprints Discuss this story
This is where the comments go.