DIK VAN LOMWEL,
Managing director and head of Europe and Middle East
• 1997: Joined Neuberger Berman
• Before heading the firm in Europe and the Middle East he ran distribution for Europe and Middle East and held various sales management roles within the equity division
• Before 1997: Institutional sales at UBS and ABN AMRO Hoare Govett
I first met Dik van Lomwel high up on a deserted floor of 25 Bank Street, Canary Wharf, almost exactly one year ago. The employees of Neuberger Berman, bought by Lehman Brothers in 2000, were the only people left, and the place had a melancholy air. “It’s a tragedy, what happened here,” he said. “Lehman was a genuinely nice place to work - how many firms on the Street had senior people who stuck around for so long? But now we have the opportunity to take that forward into the new firm.”
A week earlier, the Neuberger Berman Group had been created through a management buyout set in process just before the Lehman bankruptcy. Initially, private equity firms Bain Capital and Hellman & Friedman were set to buy much of Lehman Brothers Investment Management - but because they were not interested in certain parts of the business and the equity market had nosedived, management ultimately prevailed with a bid preserving a 49% share for the Lehman estate. Neuberger Berman won independence again on May 8, 2009.
Soon afterwards the firm’s European base swapped that Canary Wharf eyrie for offices in Berkeley Square - symbolic of the move away from the investment banking world to that of independent asset management. Nonetheless, the vote of confidence from the Lehman estate was invaluable. “We had to convince the administrators that there was a viable business and that they shouldn’t pull the plug to get the money right away,” van Lomwel reasons. The risk of an employee exodus passed, which, in turn, reassured investors.
The solidity of the European business was by no means assured. The London office only opened in 2004, a year after Lehman had completed its US-centric set of asset management acquisitions - New York’s Neuberger Berman for equities, Chicago-based Lincoln Capital for fixed income and Crossroads, the private equity fund of funds in Dallas. In the meantime, a number of strategies were wrapped as UCITS, and by 2008, 15% of the firm’s assets came from outside the US. The retail side proved vulnerable, thanks to ‘Lehman Bros’ labelling - “a brand about as popular as swine flu for distributors” - but institutional money remained resilient. Indeed, right in the teeth of the bankruptcy a UK pension fund seeded a new currency management product. That illustrates an important point about Neuberger Berman’s positioning for the Europe: if you were looking for a standard 2% tracking error global equity fund you’d be unlikely to go with a business at the mercy of PricewaterhouseCoopers; if it’s a specialist asset class and the manager embodies the strategic culture you’re looking for, you have to make that business-risk decision. That is what the firm sells in Europe: “It’s about stable, smart, high-conviction investment management,” says van Lomwel.
This is different from the firm’s position in the US. “We don’t do European equities, we don’t really do European fixed income,” van Lomwel notes, which means that, particularly on the fixed income side, it cannot replicate the ‘core and core-plus’ US offering. However, its Chicago team has certainly been picking up interest in distressed, high yield, and credit. “We need to be very clear with clients where we play and where we don’t play,” says van Lomwel. “We know where our strengths are, and you only have one chance to make a first impression.”
Van Lomwel is happy that this plays into some strong European trends. The first is a focus on capital preservation - and therefore absolute return. That drives alpha/beta separation, which itself feeds a demand for high-conviction investing and a move from regional to global mandates. “Once you’ve decided to buy active management, you might as well go for a manager whose conviction you have faith in, who can apply that conviction as broadly as possible,” he reasons.
Alongside the credit capabilities, van Lomwel has seen interest in its 30 years of experience in private equity funds of funds in the shape of its Crossroads range - which just picked up £30m from the UK’s Somerset County Council Pension Fund. He is also excited by “something a little bit different” - a China UCITS fund managed by a Hong Kong and Shanghai team headed by long-time government adviser Frank Yao.
Like any entity that has pulled together several distinct businesses and more than 30 independent teams, Neuberger Berman faces the challenge of maintaining coherence. Van Lomwel insists that “independent thinking should not be diluted by committee-driven ideas”, but also suggests the re-birth helped concentrate minds: “The clean sheet is quite scary, but it’s also a great opportunity to make sure you get things right,” he says. “We thought it quite important - especially with all these independently minded asset managers - to get everyone together and agree on a mission statement.”
Balancing that independence with the capacity to manage risk across diversified products and asset classes feeds into the firm’s ‘strategic partnership’ mandates, supervised by head of investment strategy and risk Alan Dorsey. The most intriguing is a $1bn portfolio managed for the Texas Teachers Retirement System that replicates (at one-hundredth the size) the asset allocation and constraints of the System’s fund: the idea is to add alpha, but also to provide a kind of laboratory for ideas to apply to the main fund.
Of course, this depends upon Neuberger Berman’s expertise in core US asset classes. “The Texas mandate is unique,” says van Lomwel. “However, across Europe we do see clients seeking advice on dealing with specific asset classes - especially in alternatives. Distressed is a good example. We offer it as a fixed income, a private equity or a hedge fund of funds solution, and we offer it next to our other credit, high yield and loans expertise. Having all that under one organisational roof is useful when clients are thinking about credit and debt in a broader sense. Alan and his team have spent a lot of time talking clients through their alternatives allocation to see how they might be a bit more tactical. Investors often have far more levers than they realise, and the past 18 months has seen people really looking to get together and think things through.”
The idea informs two other mandates on the other side of the Atlantic: a $600m US pension fund broad alternatives brief with integrated reporting; and a $300m-plus hedge fund mandate for a Canadian pension plan designed to complement its existing hedge fund allocation.
“Pension funds tend to have their alternatives in silos that gradually grow in their own sorts of ways, and it’s very difficult to keep track of factor duplications,” says van Lomwel. “Those are the conversations we have in the Nordic, Dutch and UK markets, and it’s only just starting. Texas Teachers didn’t happen overnight. We want to nurture the same kinds of relationships here in Europe. Alan came over in February and March for a series of meetings and there are a lot of institutions who are just happy to have a dialogue.”
There is no doubt that the firm has had a lot of practice honing its client relationships recently: when you find yourself in the middle of something as chaotic as the Lehman collapse, you have to talk clients through it carefully. “Our focus for 2009 was thanking the clients who stuck with us and re-emphasising what we’re all about,” says van Lomwel. “That’s really set the foundation - and established the benchmark - for delivering on those promises in the years ahead.”