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Wednesday, June 09, 2010

Neuberger Berman Creditors' Exit Could Involve an IPO

News summary by MFWire's editors

A year after it formally gained its independence, Neuberger Berman is on track, says CEO George Walker. Speaking to reporters in a press conference on Tuesday, Walker pointed to increased AUM over the past year as one sign of investors' confidence in the asset manager since its spin-off from Lehman Brothers following Lehman's bankruptcy. He also stressed that the bulk of the firm’s investment professionals have stayed through the changes.

Walker also said that the firm has gained value over the past 12 months. At the time of the spin-off to Neuberger employees and an estate created to satisfy Lehman's creditors, the estate valued its 48 percent stake in the firm at roughly $1 billion, said Walker. The estate is now valuing its Neuberger Berman stake at between $1 billion and $2 billion, he added. That value is still below the $2.6 billion Lehman paid for Neuberger in 2003.

While the appreciation in value is likely to make the creditors smile, it also presents Neuberger's management with a pleasant dilemma: as their stake grows in value, they will be increasingly pressured to provide liquidity to the creditors.

One way to do that would be for Neuberger management to buy stock from the estate. Walker suggested that in the near future, the firm is following that path.

"The firm is employee-controlled and will continue to be employee-controlled as long as we own more than 50 percent. If anything, we would like to find ways to increase our share," Walker said in Tuesday's press briefing.

Yet, that course diverts capital from Neuberger or its employees and would be relatively tough to complete quickly. To raise additional capital, Neuberger could raise capital through a leveraged buyout led by management. However, the currently tight private-equity market would seem to rule out that path in the near term. A third path would be to refloat Neuberger through an IPO.

It is that third path that Neuberger's management actively contemplating according to statements made by Joseph Amato, president of Neuberger Berman, to Reuters.

"We're on a base case to be a public company, most likely to monetize that stake through an IPO. At some point, the estate may look to monetize a portion or all its interest in Neuberger Berman," said Amato. He added that an IPO would be a fair way in the future.

An IPO would raise some issues for the money manager. Amato told the MFWire.com in an interview at the briefing that a key differentiator for the firm is its ability to focus on providing top investment management expertise to its clients without the pressures to grow AUM or earnings. Those pressures are seen at asset managers that are part of much larger organizations or public companies, Amato explained.

Amato told Reuters that after the recent downturn in the stock market, Neuberger's total AUM may be close to the $155 billion it controlled when it became independent last May. At the end of March, the asset manager disclosed AUM of $180 billion. He added that inflows to the firm remain significant in recent months and were positive through Monday. 

Edited by: Sean Hanna, Editor in Chief

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