Fund Directions - What Went On At Neuberger Berman

What Went On At Neuberger Berman

The fate of money manager Neuberger Berman hung in the air after parent company Lehman Brothers collapsed last fall. In the months following, the firm was tossed around by the bankruptcy court between being sold to private equity buyers and finally being handed off to the management of the company. Through all this, the board worked diligently through three contract renewal processes and handled its regular duties. The board and management are now going through the final stages before the buyout by management is complete.

Fund Directions spoke with Tom Seip, independent chairman, Faith Colish, independent director and chairman of the board's contracts committee, Robert Conti, ceo of Neuberger Berman and Arthur Delibert, independent counsel to the board, about the processes, decisions and dedication that has gone into finding the fund company a home. [Colish and Delibert were named Trustee and Independent Counsel of the Year, respectively, at last month's Mutual Fund Awards. See pages 9 and 10 for a write-up on the winners.]

Q: What was the first thing the board did when it was revealed Lehman was in trouble?

Seip: We had a bit of an early warning the Lehman thing was in a lot of ways like a slow motion train wreck. Lehman announced it was shopping Neuberger a long time before it collapsed so we had quite a bit of time to think about what our duties would be. There were two main choices it could be sold to another mutual fund company or someone in the financial services business that was not in the mutual fund business and wanted to be - or it could be sold to a private equity firm.

Faith Colish Colish: From a board perspective, we were concerned and wanted as much information as we could get. I think our feeling was that it wasn't our job to find a new step-parent - we had to wait and see how things played out. It was not our job to control the chain of events, so long as the funds' best interests were being served.

Delibert: Another issue that comes up in such cases is that some funds have exemptive orders that allow various types of transactions with the advisor, such as securities lending or principal securities trading. If you hear that the advisor or the parent is in financial trouble, you have to be concerned about whether the fund has any direct exposure to that entity whether they have the necessary collateral in securities lending, whether the loaned securities are marked-to-market daily, etc.

Conti: When Lehman finally filed for bankruptcy, we tried to get the board as much information as we could. We swung right into a series of board meetings the very next day, but we didn't know that much either. A lot was happening and it was a very confusing time. We were lucky that our funds are custodied away. Our operations are not and were not tied to the infrastructure of Lehman. We have some systems with them, but all our shareholder money travels through State Street. The mutual fund industry is primarily outsourced. So we were lucky in the overall structure, and that benefited us.

Arthur DelibertDelibert: Any board whose advisor is facing severe financial stress, when it comes to actual bankruptcy, has to worry about the operational systems will the computer systems continue to function? Are the ...

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What Went On At Neuberger Berman