Neuberger Berman is launching a UK-domiciled fund range, with the group’s first strategy a global long/short equity portfolio run by investor Steve Eisman and team.
The new fund range provides UK investors with the broadest accessibility to Neuberger Berman’s innovative investment thinking and differentiated propositions – across its diverse investment platform of equities, fixed income, alternatives and multi asset. Neuberger Berman’s new fund range will deliver solutions in response to the needs and challenges of the UK marketplace, with products often designed in partnership with clients.
Neuberger Berman manages considerable institutional assets in the UK – while about 10 per cent of assets in the group’s Irish UCITS fund range of almost USD30bn is managed on behalf of UK investors, as of 31 December 2018. While the creation of the new UK-domiciled range will not purely replicate the group’s existing Irish UCITS platform, the new structure may allow UK investors to access Neuberger Berman strategies more efficiently than in the past.
Dik van Lomwel (pictured), Head of EMEA and Latin America at Neuberger Berman, says: “Neuberger Berman has built up solid foundations in the UK institutional and wholesale markets over many years, becoming synonymous for innovation and expertise across multiple asset classes. The launch of our UK onshore range, which comes after years of careful consideration, is a significant milestone for our group and allows us to develop differentiated strategies to meet the bespoke needs of the broad UK advisory space.”
Dramatised by Steve Carell in the Hollywood blockbuster ‘The Big Short’, Steve Eisman’s new TM Neuberger Berman Absolute Alpha Fund is a fundamentally-driven global long/short equity strategy, with the management team seeking to generate alpha on both the long and short side of the portfolio.
Alongside co-managers Michael Cohen and Dana Cohen, Eisman’s team will seek to exploit opportunities – both positive and negative – created by sector, company or management disruption and change. The team also employs a four-step analytical and portfolio construction process. This is headlined by a financial system overlay, evaluating key metrics such as credit spreads and credit quality, which the team believes is integral in identifying early indicators of broad economic stress.
The TM Neuberger Berman Absolute Alpha Fund does not aim to be consistently market neutral and can take on a positive or negative directional bias through its net exposure. This is expected to be between 65 per cent net long to -20 per cent net short.
The Fund is based on an existing equity long/short strategy managed by Eisman, which was launched on 1 November 2016. Since inception to end-December 2018, the strategy delivered a net return of 11.42 per cent, in USD terms, against just 1.27 per cent for the HFRX Equity Hedge Index.*
Eisman, who was famously on the right side of the market meltdown more than a decade ago, says the financial crisis was caused by four interlocking trends – excessive leverage, a blow-up in sub-prime mortgages, sizable ownership of sub-prime securitisations by systematically-important organisations, as well as derivatives. While these issues are not evident in the system today, Eisman does believe there are lessons to be learned.
“The first lesson to remember is that paradigms can last a long time, even when they are wrong. Wall Street thought it knew how to manage its own risk and therefore increased leverage continuously. It took a crisis to prove the paradigm was wrong,” Eisman explains.
“Secondly, incentives trump ethics almost every time. Mortgage originators and securitisation departments were all incentivised on volume, not quality. They kept originating until credit quality imploded. Finally, Regulation matters and changes in regulation can matter even more.”
“How do we apply these lessons to today? We believe it is important to reassess compensation structures, with a focus on long-term return-on-equity over volume. It is also crucial to understand underlying risks.”
In addition to the wealth of expertise on the team, the portfolio managers leverage the insights and resources of Neuberger Berman’s global equity research department, which consists of 41 investment professionals. This experienced department, which undertakes upwards of 2000 company meetings per year, has a broad and extensive coverage universe, helping provide the portfolio managers with a diverse range of ideas to be utilised within the strategy.
van Lomwel adds: “The launch of the new TM Neuberger Berman Absolute Alpha Fund is clear evidence of our innovative approach and our commitment to the UK. We are extremely pleased to have investors of the calibre of Steve at Neuberger Berman and are thrilled to be able to offer his unique proposition to the UK marketplace.”
Michael Paul, Fund Research at Brewin Dolphin, says: “The combination of Steve Eisman’s experience, skill, and success as a long short equity manager and Neuberger Berman’s vast resource as a large independent investment house make for a compelling proposition. Steve has demonstrated over many years his ability to think differently from the crowd, and by doing so identify compelling investment opportunities ahead of the competition. Whilst he made his name for the“Big Short”, his track record points to a much more consistent ability to add value.
“Whilst you might expect a ‘star US hedge fund manager entering the UK market’ to come with an eye watering charging arrangement, it is to Steve and Neuberger Berman’s credit that they have shunned the performance fee structure so prevalent within the peer group, and launched with much more client friendly fees.”