ASSET MANAGEMENT

Freeat

LastCaught 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/41

I N S T I T U T I O N A L I N V E S TO R . C O M • F E B RUA RY 2 0 1 4

CEO George Walker IV: A new firm, an old structure

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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 New York 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. Dur-ing 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,” says Walker, now CEO of Neuberger Berman, at the firm’s New York City headquarters, a few blocks from Grand Central Terminal.

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,

Neuberger Berman finds itself, structurally at least, a midsize pri-vate 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 Penn-sylvania. “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 IN A WEALTHY ST. LOUIS FAMILY. His great-grandfather George Herbert Walker started G.H. Walker & 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, George W. Bush, who both became

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. Walker 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

After George Walker IV left a 14-year career at Goldman, Sachs & Co. in 2006 forLehman Brothers Holdings, he found himself at groundzero of the financial crisis. Walker, who had been hired

“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

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Goldman had bought in 1997 after the firm launched the careers of traders like Bruce Kovner and Paul Tudor 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 Alliance-Bernstein, 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 Neu-berger, an art collector who made a name for himself shorting Radio

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

David Kupperman and Judith Vale: A product mix of hedge funds and value investing

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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 mil-lion private equity mandate that includes co-investments and secondaries.

And the firm does execute. Of its tradi-tional equity and fixed-income strategies, 88 percent have outperformed their bench-marks gross of fees for the ten years ended September 30, 2013.

Neuberger boasts a product mix that both hedge funds and traditional money manag-ers 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 lack-ing 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,” Walker 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 Neu-berger 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 Neu-berger doesn’t have specific goals like growth in assets under management, although it needs to keep key employees happy by grow-ing. 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

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 manag-ers that need to produce growth for stock-holders 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 York Mellon Corp. scooped up smaller firms, promising to centralize services like distribution and keep managers autono-mous. 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 mar-kets 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 alter-natives 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 bil-lion 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 cli-ents with solutions like mine, because there are no other obvious things to do.”

In 2011, Neuberger hired David Kup-perman — 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 Neu-berger for its mutual fund distribution capa-bilities and understanding of alternatives. Kupperman has since launched the Abso-lute 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 pos-sible,” 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 busi-ness of buying stakes in hedge fund man-agement 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 trans-actions, 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 Protec-tion 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 effec-tive 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

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 exchange-traded funds.

Judith Vale and Robert D’Alelio comanage the Genesis mutual fund, a small-cap value strategy that represents a big part of Neuber-

ger’s mutual fund family. The duo epitomize Neuberger’s culture: autonomy, outspoken-ness and long tenure. They relish their con-trarian 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, com-pared with seven under Lehman.

Neuberger went private just as bond fund managers faced a particularly tough environ-ment. Interest rates have fallen for 30 years, and the world that fixed-income managers once prospered in now seems to have disap-peared. 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 fixed-income 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 environ-ment changes.

Andrew Johnson, head of investment-grade 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. The 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 mod-els 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,” says Walker, 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 bil-lion. Neuberger Berman can then pitch itself as a 75-year-old start-up. • •

“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

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

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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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 broker-dealer 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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