An emerging markets coup
After a burst of acquisitive growth during its years as the investment division of Lehman Brothers, Neuberger Berman’s time as an independent asset manager has instead been spent redefining its brand, building track records and expanding its global reach.
Its last major portfolio management hire was made back in 2011, when Eli Salzmann
joined to manage US large-cap value. The last time it brought in a group of investors was pre-buyout, in 2008.
“Since independence, growth simply hasn’t been the priority,” says CEO George Walker.
It is, therefore, a pretty big deal when Neuberger lures Rob Drijkoningen and Gorky Urquieta, co-heads of ING Investment Management’s widely-admired emerging market debt outfit, as well as 18 of their colleagues.
(Hans Stoter, ING IM’s CIO, told IPE that his firm is “committed to continuing to offer the full range of existing EMD Strategies”, and pointed to “solid progress” in rebuilding the team – most recently, the appointment of a new lead hard-currency portfolio manager. Asset losses have been “relatively low since the departures”, he adds.)
“We have been saying for some time that two areas we needed to improve were US large-cap value, which we completed when we hired Eli, and EMD,” Walker says. Getting the right people has been a two-year project.
EM debt was a conspicuous hole in the Neuberger offering. Until now, it only featured as part of bespoke mandates managed by its quantitative team. Its place as one of the most important asset classes for the next generation seems assured and it plays well with the European and Asian investors that the firm has been working hard to attract over the past five years. Just as important, it is a good fit with the investment-grade and high-yield credit strategies in which Neuberger has built a reputation.
“We were keen to have a fundamentals-driven EM debt capability,” says head of Neuberger Berman Europe & Latin America, Dik van Lomwel. “We are very, very pleased with the outcome.”
Bart van der Made, Raoul Luttik, Prashant Singh, Nish Popat and Jennifer Gorgoll have all joined Neuberger. By the end of May, 13 more ING IM colleagues will have been hired. Drijkoningen in The Hague and Urquieta in Atlanta are already hiring from other firms, too.
“One of the most compelling things about Neuberger, for me, was that people are not seen to be a cost,” says Drijkoningen. “They understand that you have to invest in the right people if you want to achieve certain revenues, and there was also no question about investing in the systems we need to do our work. A working group of 30 senior compliance, commercial, marketing and operational professionals has been put in place to help embed us as quickly as possible.”
Despite having offices in Amsterdam and London, Neuberger is creating a new one in The Hague where Drijkoningen and most of his colleagues already live and work. (Singapore-based professionals will move to the firm’s office there).
“Most important was that what we committed to do in EM debt should be world-class,” says Walker. “The way these people and their processes work does mean a lot of resources. The business that most of our clients would regard as most analogous would be our high-yield business, which has 33 professionals managing about $33bn, so the size of our commitment relative to the size of the assets is unusual for us.”
What Neuberger gets for this commitment are individuals with experience in hard-currency EM debt back to 1994, local-currency back to 1998 and corporates back to 2003, ready and in place in The Hague, Singapore and Atlanta, deploying a shared fundamental research-based philosophy and process that seems to fit well with what the firm does elsewhere in fixed income.
“The top-down element that drives our tactical asset allocation in our blended strategies has been more advanced than is typical for our peers, we feel, partly because I ran a multi-asset group for two years,” says Drijkoningen. “So although our new team will be structured along the lines of hard, local and corporates, there are cross-fertilisations. The sovereign view has an important input into the top-down element of the corporate strategy, of course, but hard, local and corporate are also supported by economists and strategists who work with all three teams to consider how global risk works its way into emerging risk.”
Drijkoningen expects the information flow to increase as the new team beds in, particularly through the country overlaps with Neuberger’s existing investment-grade team and the sector overlaps with both investment-grade and high-yield credit. Systems to facilitate seamless integration of company research across all the fixed-income teams are on the cards, and because a lot of Neuberger’s credit and FX work happens in London, some of the new hires will split their time between the City and The Hague.
“There are many different flavours of emerging market debt so it was important that the style fit with the Neuberger philosophy – research-driven, fundamentals-based,” says van Lomwel. “We also wanted team players interested in working with other parts of our credit business. Cross-fertlisation of ideas, knowledge and best-practice makes a big difference when mandates are becoming more tailored and complex, cutting across traditional fixed-income benchmarks.”
Neuberger’s commitment is equalled by that shown by the new recruits. Those coming from ING IM leave behind more than €12bn of assets.
Drijkoningen and his crew could have struck out alone, of course – after all, he has management experience building the multi-asset group at ING IM, as well as portfolio management expertise. But he acknowledges the difficulty of getting a resource-heavy EM debt business to fly.
“I’d spoken with credible teams in the UK who have been working away with some friendly capital, but have really struggled to take it to the next stage,” he says. “It’s very expensive to build a franchise, but a single focus for a relatively large team also involves considerable risk: we know that Neuberger Berman will be able to pull us through tough
Besides, Neuberger’s post-Lehman structure means that its partners will own 81% by the end of 2013, with 100%-ownership locked in for the future. That was important for Drijkoningen and his colleagues, as was the history and direction of travel: Neuberger is unlikely to surrender its independence again, and that is valuable to professionals emerging from a captive asset manager.
“Neuberger is single-mindedly focused on asset management, which is attractive in a context of growing pressures on larger organisations to fulfill Solvency II and Basel III obligations, or generally cope with greater involvement in their industries,” as Drijkoningen puts it. “It’s not always clear how core asset management is in those organisations.”
Neuberger’s direction of travel in other areas is also important. Drijkoningen notes his new firm’s impressive roster of US clients, its six US consultant-relations representatives – and the structural underweight that US institutions have to EM debt relative to their European peers. But, by the same token, the commitment to EM debt is underpinned by the firm’s self-conscious ongoing globalisation of its footprint and clientbase.
“Perhaps when Neuberger was much more US-centric, it would have been far harder for us to engage,” he says. “Now that they have made such big steps into Europe and Asia we are comfortable that we can very successfully manage EM debt here. You need an organisation that is open to the sort of multi-lingual, multi-location approach that the asset class requires.”
Welcoming these 20-plus market-leading professionals is another important step in Neuberger Berman’s effort to become that organisation. It also rounds off what is now a genuinely formidable global fixed income and credit capability.