NEUBERGER BERMAN
2017 Annual Report
TABLE OF CONTENTS
A MESSAGE FROM OUR CEO
PERSPECTIVES: ESG INTEGRATION
EQUITY
PERSPECTIVES: INNOVATION
FIXED INCOME
PERSPECTIVES: ACCOUNTIBILITY
ALTERNATIVES
PERSPECTIVES: RISK MANAGEMENT
3
21
23
29
31
37
39
45
QUANTITATIVE AND MULTI-ASSET CLASS
PERSPECTIVES: CLIENT ENGAGEMENT
PRIVATE CLIENT
PERSPECTIVES: CORPORATE SOCIAL RESPONSIBILITY
CLIENT COVERAGE
PERSPECTIVES: FINANCIAL RISK MANAGEMENT
FINANCIAL HIGHLIGHTS
LEADERSHIP
47
50
51
57
59
65
65
66
O U R M I S S I O N
Neuberger Berman was founded in 1939 to
do one thing: deliver compelling investment
results for our clients over the long term.
This remains our singular purpose today, driven by a culture rooted
in deep fundamental research, the pursuit of investment insight and
continuous innovation on behalf of clients, and facilitated by the free
exchange of ideas across the organization.
CLIENT ALIGNMENT
100%
Deferred cash compensation
directly linked to team and
firm strategies
As a private, independent, employee-owned investment manager,
Neuberger Berman is structurally aligned with the long-term interests
of our clients. We have no external parent or public shareholders to
serve, nor other lines of business to distract us from our core mission.
And with our employees and their families invested alongside our
clients—plus 100% of employee deferred cash compensation directly
linked to team and firm strategies—we are truly in this together.
From offices in 31 cities worldwide, Neuberger Berman manages
a range of equity, fixed income, private equity and hedge fund
strategies on behalf of institutions, advisors and individual investors
worldwide. With more than 500 investment professionals and over
1,900 employees in total, Neuberger Berman has built a diverse
team of individuals united in their commitment to client outcomes
and investment excellence. Our culture has afforded us enviable
retention rates among our senior investment staff and has earned us
citations in the top-ranked firms (among those with 1,000 or more
employees) in the Pensions & Investments “Best Places to Work in
Money Management” survey each year since 2013.
PARTNERSHIP AND INNOVATION
75+
Years spent collaborating
with our clients to overcome
their challenges
EXPERIENCE AND STABILITY
96%
Annualized retention rate of
senior investment professionals*
since becoming an independent
company in 2009
BREADTH OF PERSPECTIVE
500+
Investment professionals offering
unique insights on securities,
markets and strategies
* Managing Directors and Senior Vice Presidents
2017 ANNUAL REPORT NEUBERGER BERMAN | 1
O U R I N V E S T M E N T P L AT F O R M
EQUITY
FIXED INCOME
ALTERNATIVES
AUM $295BN1
INVESTMENT
PROFESSIONALS
$104bn
223
FUNDAMENTAL
Global/EAFE
U.S. Value/Core/Growth
Emerging Markets
Regional EM, China
Sustainable Equity
Income Strategies:
– MLP
– REITs
QUANTITATIVE
Global
U.S.
Emerging Markets
Custom Beta
$130bn
159
AUM and Committed Capital
$69bn
139
Global Investment Grade
Global Non-Investment Grade
Emerging Markets, Regional EM, China
Opportunistic/Unconstrained
Municipals
Specialty Strategies:
Private Equity:
Hedge Funds:
– Primaries
– Co-Investments
– Secondaries
– Specialty Strategies
– Minority Stakes in
– Multi-Manager
– Equity Long/Short
– Credit Long/Short
– Event Driven
Alternative Firms/Dyal
– CLO Mezzanine
– Currency
– Corporate Hybrids
Alternative Credit:
– Private Credit
– Residential Loans
– Special Situations
Risk Premia
Options
Global Macro
Commodities
MULTI-ASSET CLASS SOLUTIONS AND STRATEGIC PARTNERSHIPS
FUNDAMENTAL
Global Relative and Absolute Return
Income Focused
Inflation Management
Liability Aware
QUANTITATIVE
Risk Parity
Global Tactical Asset Allocation
1 As of December 31, 2017. Firm assets under management (AUM) includes $103.8 billion in Equity assets, $130.1 billion in Fixed Income assets and $61.3 billion in Alternatives assets under management.
Alternatives AUM includes AUM & Committed Capital since inception, which reflects contractual commitments to fund investments advised by NB Alternatives Advisers LLC, including those still in documentation,
since inception (the oldest mandate of which was founded in 1981) (“Committed Capital”).
2 | NEUBERGER BERMAN ANNUAL REPORT 2017
GEORGE H. WALKER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A Message from Our CEO
2017 was an extraordinary year in the financial markets. Equities were notably robust; for example, the S&P 500 delivered a
positive return in each month of the year—the first time it has ever done so—and closed at a record high 62 times. Dollar-
based returns of non-U.S. developed and emerging markets stock indexes were even stronger. With global central banks
remaining broadly accommodative, investors took their cues throughout 2017 from meaningful data like synchronized global
economic growth and improving corporate earnings rather than being distracted by the noise of discordant headlines. Nothing
gold can stay, however; though we entered 2018 with the expectation that global GDP and corporate earnings growth would
continue, financial conditions are likely to grow increasingly normal—i.e., more volatile—as global central banks raise bench-
mark lending rates and trim asset purchases. A new regime is near on the horizon.
2017 also was an extraordinary year for Neuberger Berman. While the
firm delivered compelling results by virtually any metric, most significant
was the continued strength of our long-term investment performance
across asset classes and geographies, against both benchmarks and
our peers. Robust investment results fueled record client-retention
rates, driving a 16% increase in the implied average holding period
of client accounts. Such results also attracted $13 billion of net client
inflows, helping propel the firm to a record-high $295 billion in assets
under management as of year-end. The firm’s revenue and earnings,
consequently, exceeded all prior periods.
We used the tailwind of a strong 2017 as an opportunity to prepare for
the more volatile conditions that lie ahead. On the risk front, we continued
to move the firm to a more conservative capital structure, reducing our
debt outstanding to $600 million with notes that mature in 2027 and
2045, fully redeeming those that had been scheduled to mature in the
next five years. Debt reduction and continued earnings growth has
resulted in improvements to our interest coverage and debt to
Adjusted EBITDA ratios, yielding us another round of upgrades to our
investment grade ratings from both Standard & Poor’s and Moody’s.
We also invested heavily in our capabilities during the year, adding
talent and making major commitments across products, geographies and
technologies, as I’ll discuss in detail on the pages that follow.
In our most recent equity offering we added 68 new employee owners,
which brought the number of current employee owners to 503.
Combined with deferred cash compensation directly linked to client
returns, Neuberger Berman employees and their families have
approximately $3 billion invested alongside our clients, epitomizing
our commitment to alignment.1 The alignment of interests—not only
between our employees and our clients, but also between the firm
and our employees—is fundamental to our success as a private,
1Employee assets include current and former employees and their family members.
2017 ANNUAL REPORT NEUBERGER BERMAN | 3
ASSETS UNDER MANAGEMENT
$295 Billion
AS OF DECEMBER 31, 2017
Neuberger Berman
Neuberger Berman Group
E Q U I T Y $ 1 0 4b n
45% U.S. Core
17% Global / International
15% U.S. Value
8% Income
6% U.S. Growth
5% Sustainable Equity
4% Quantitative
F I X E D I N C O M E $13 0b n
40% Global Investment Grade
32% Global Non-Investment Grade Credit
13% Emerging Markets Debt
8% Municipals
7% Multi-Sector and Opportunistic
A LT E R N AT I V E S $ 6 9b n
24% Primaries1
20% Hedge Funds / Options
18% Co-Investments1
13% Minority stakes in alternative
firms / Dyal
13% Secondaries1
7% Alternative Credit2
5% Specialty Strategies
independent, employee-owned investment manager. It also serves as a self-selection
mechanism through which we attract those individuals who share our passion for
delivering compelling long-term investment results on behalf of our clients; testament
to this is a 96% annualized retention rate among senior investment professionals
since we became an independent company in 2009.
Retention is vital in our industry. Investment management is a team sport; for clients,
there’s confidence in knowing that the players in the lineup today are the same ones
that have been knocking the ball out of the park all season long, and that these play-
ers are more likely to be wearing the same jerseys in the years to come than is the
case at most firms. I’m proud of the team we have assembled, and I’m not alone; we
have been cited as a top-ranked firm (among those with 1,000 or more employees)
in the Pension & Investments “Best Places to Work in Money Management” survey
annually since 2013, ranking second in 2017.
ALIGNMENT WITH AN ARRAY OF STAKEHOLDERS
At Neuberger Berman we have long believed that material environmental, social and
governance (ESG) characteristics are an important driver of long-term investment
returns, from both an opportunity and a risk-mitigation perspective. The investment
management industry over time increasingly has accepted this concept, and we now
find that many clients expect a robust investment process, regardless of asset class, to
integrate material ESG characteristics. We expect this trend to continue as a greater
number of investors—from giant institutions to individuals—embrace the opportuni-
ties of ESG, with some seeking to align their investment approach with their impact
objectives.
1 Includes estimated allocations of dry powder for diversified portfolios consisting of
primaries, secondaries, and co-investments. Therefore, AUM may vary depending
on how mandates are invested over time.
2 Includes commitments from public investment company registered under the laws
of Guemsey.
AUM BY CLIENT REGION
AUM BY CLIENT TYPE
70% AMERICAS
65% PENSION FUNDS, SOVEREIGN WEALTH FUNDS AND OTHER INSTITUTIONS
14% EUROPE/MIDDLE EAST
19% FINANCIAL INSTITUTIONS, RIAs AND ADVISORS
16% ASIA PACIFIC
16% PRIVATE CLIENTS
4 | NEUBERGER BERMAN ANNUAL REPORT 2017
ESG ACCOUNTS FOR AN INCREASING SHARE OF GLOBAL ASSETS UNDER MANAGEMENT
U.S. Dollars in Billions
$25,000
$20,000
$15,000
$10,000
$5,000
$0
$22,090
$18,276
$13,261
2016 by Region
Europe – $12,040
U.S. – $8,723
Canada – $1,086
Australia/NZ – $516
Asia ex-Japan – $52
Japan – $474
2012
2014
2016
Source: Global Sustainable Investment Alliance.
We have a deep history in ESG investing and have continually sought to
bolster our capabilities in this area in accordance with client demand;
we first applied avoidance screens to an investment process in the early
1940s and several of our investment teams, including Emerging Markets
Debt and Sustainable Equity, have been integrating ESG factors into
their processes since the 1990s. In 2017 we created an ESG Investing
unit, which reflects not a minor enhancement to our existing capabili-
ties but rather a significant leap in functionality across the firm—think
Neuberger Berman ESG 2.0. Led by Jonathan Bailey, the ESG Investing
team is charged with working with our investment groups to deepen the
sophistication and consistency of ESG factor integration in the context
of their particular portfolio strategy. All teams at Neuberger Berman now
have access to a range of proprietary ESG data; strategies representing
approximately 45% of our AUM had integrated ESG factors into the
investment process as of December 31, 2017, and we expect this number
to increase materially in 2018. We also have been developing innovative
new strategies that seek to make investments that support positive
environmental and social outcomes alongside competitive risk-adjusted
market-rate returns, including the Municipal Impact and Private Equity
Impact strategies.
Engagement with corporate managements on material ESG issues—
from business strategy and governance to environmental and social
concerns—is key to the ongoing alignment of our business with
the interests of our clients. In a world gone increasingly passive,
active investment managers must play an outsized role in supporting
and defending shareholder interests through engagement with the
companies in which we hold stakes. Shareholder engagement is an
area in which active management has an inherent advantage over
the passive competition. Clients understand that passive managers
do not have the resources to engage across all their holdings. As
such, engagement is an area in which passive can benefit from the
work of active managers like Neuberger Berman, following the lead
we take based on the work of our hundreds of portfolio managers
and research analysts, many with decades of experience analyzing
particular companies and industries. In short, we don’t just have a
stewardship team, we are an organization of stewards dedicated to
representing the interests of our clients.
2017 ANNUAL REPORT NEUBERGER BERMAN | 5
While we are engaged, we are not a traditional “activist investor.” We
don’t initiate positions with the intention of fixing a broken company,
nor do we seek public battles with those companies we elect to engage.
We believe strongly that ongoing dialogue helps resolve differences in
a constructive manner, positively influencing corporate behaviors and
driving long-term, sustainable returns for our clients. Such positions entail
continual scrutiny of and interaction with a company over time, not just
when things go wrong or when a proxy vote comes up.
When private dialogue fails or when industry dynamics require urgent
attention, we deliberate on the best course of action in support of our
clients’ interests. This includes the potential to bring our concerns public.
Take, for example, Whole Foods Market, where we saw a great business
hamstrung by a strategic plan that was generating lower same-store
sales, declining margins and increasing voluntary employee turnover.
Disappointed with the retailer’s execution despite its phenomenal
brand, favorable consumer demographics and dominant prepared foods
business, Charles Kantor and Marc Regenbaum, portfolio managers
with responsibilities that cover both mutual funds and individual clients,
actively engaged with management to promote changes that would
improve performance and thereby unlock languishing shareholder value.
The depth of interaction with both Whole Foods senior management
and with members of its board was evident through numerous confer-
ence calls, store visits, emails, letters and in-person meetings—all in
an effort to impress upon them the need for action. To management’s
credit, Whole Foods implemented a number of our suggestions, including
eliminating its dual CEO structure, appointing a new CFO and adding
directors with retail and governance experience. Ultimately, Whole Foods
was purchased by Amazon in a landmark deal that closed in August, a
transaction we believe creates long-term value for all stakeholders. In
December, Amit Solomon, portfolio manager on our Intrinsic Value team,
delivered an open letter to the board of directors of Nuance Commu-
nications expressing concerns about the process and transparency of
the firm’s CEO succession plan, as well as its corporate governance
practices and lack of accountability following a cyber breach. Following
our requests, Nuance’s board appointed an external CEO and agreed
not to nominate the outgoing CEO to the board of directors so as not
to overshadow the new chief’s strategy. Our engagement with Nuance
regarding improvement in corporate governance continues.
Engagement has been prevalent across the Neuberger Berman investment
platform for many years, and in 2017 we bolstered our ESG Investing team
with resources dedicated to governance, engagement and proxy voting,
enabling them to track engagements in a more systematic way in collabo-
6 | NEUBERGER BERMAN ANNUAL REPORT 2017
ration with our Global Equity Research and Fixed Income Research teams.
In addition, our first-ever firm-wide Proxy Voting and Engagement Report
provides details on the scale and depth of our engagement—including
examples drawn from the more than 590 structured engagements and
over 2,500 meetings with management teams that we conducted in 2017.
When it comes to engagement, judgment matters. The judgment to resist
the temptation of “window-dressing” in favor of supporting measures that
we believe can fundamentally improve a company’s ability to compete. The
judgment to focus on germane issues that have the potential to improve
shareholder outcomes, rather than just ticking off boxes. For example, an
ESG analysis of a brewer like Anheuser-Busch InBev would focus more
on factors like water stewardship and responsible marketing and less on
things like product affordability, while the approach toward a social media
company such as Facebook would emphasize data security, consumer
privacy and workforce diversity over supply-chain management.
Such judgment also extends to the awareness that our business deserves
the same scrutiny and that we must hold ourselves accountable to the
same standards as our portfolio companies. To this point, we believe that
issues surrounding human capital represent one of the most significant
risks and opportunities for companies worldwide, including Neuberger
Berman. With broad unemployment levels low and companies in many
industries facing hyper-competitive talent markets, creating and main-
taining an environment that attracts and retains effective employees is
essential for sustainable long-term success. An attractive and productive
working environment is a function of any number of factors—including
compensation and benefits, the availability of training, mobility, advance-
ment, flexibility, diversity and inclusion, and pay equity. Nurturing an
inclusive and motivating culture in the face of today’s rapidly changing
workforce demographics and societal mores presents a particular chal-
lenge—and an opportunity to gain competitive advantage.
Not only do we expect any company in which we invest to have best-
in-class human capital management policies and procedures in place,
we continually strive to make our firm better—both for our clients and
our employees. One tool we use in this pursuit is a periodic pulse check
with our staff. We regularly conduct an Employee Engagement Survey
in which employees across the organization respond anonymously to a
series of questions designed to tease out the firm’s condition, including
two key factors: employee engagement and employee enablement.
Engagement reflects an employee’s commitment to the firm, while
enablement relates to having the right people in the right roles with
the right resources to perform at their full potential.
As you can probably guess, the most effective employees typically are both
highly engaged and highly enabled. While I certainly want this for the
firm’s employees on a personal level, research shows that having engaged
and enabled employees not only is an obvious positive from a morale
perspective, but it also can translate into improved financial results. A study
by Korn Ferry Hay Group of more than 400,000 employees across a range
of companies found that improvements in employee survey results were
linked to improvements in core financial metrics. The results can be seen
in the chart below; most notably, those companies that saw an increase in
their percentage of engaged and enabled employees improved their ROE
by nearly five percentage points between the two survey periods, while
those that were flat or down saw their ROE fall by four percentage points.
ENGAGEMENT & ENABLEMENT AFFECTS MORE THAN JUST MORALE
Average Change in Performance between Surveys
Neuberger Berman 2017
Employee Engagement Survey (Excerpt)
N E U B E R G E R B E R M A N I S C L I E N T F O C U S E D
94% Favorable
5% Netural
1% Unfavorable
Neuberger Berman
% Favorable vs.
Asset
Management
Peers
High-Performing
Companies
Benchmark
+12
+12
5
4
3
2
1
0
-1
-2
-3
-4
-5
s
t
n
o
P
i
e
g
a
t
n
e
c
r
e
P
4.88
I F E E L P R O U D T O W O R K F O R T H E F I R M
2.03
-1.04
89% Favorable
9% Netural
2% Unfavorable
Neuberger Berman
% Favorable vs.
Asset
Management
Peers
High-Performing
Companies
Benchmark
+7
+5
-4.05
Return on Equity
Return on Investment
Increase in % of Engaged & Enabled Employees
Decrease or no Change in % of Engaged & Enabled Employees
Source: Korn Ferry Hay Group.
I’m quite pleased with the results of our latest employee survey, which was
conducted in 2017; our overall results were strong on both an absolute
basis and relative to our asset management peers, to “high-performing”
companies across industries and to our historical performance.2 Though
the survey results are extensive in their depth and breadth, I’d like to share
a few particular areas of strength as well as those where improvement is
needed, depicted to the right.
M Y I M M E D I AT E M A N A G E R C O A C H E S M E
I N M Y D E V E L O P M E N T
65% Favorable
21% Netural
Neuberger Berman
% Favorable vs.
14%
Unfavorable
Asset
Management
Peers
High-Performing
Companies
Benchmark
0
-1
Source: Korn Ferry Hay Group, Neuberger Berman.
2 The Korn Ferry Hay Group asset management benchmark is based on data collected from over 86,000 employees in seven organizations operating in the asset management industry. The Korn Ferry
Hay Group high-performing companies benchmark is based on data from more than 35 companies globally. These companies display outstanding financial performance as well as strong engagement
and enablement scores, with financial performance weighted more heavily.
2017 ANNUAL REPORT NEUBERGER BERMAN | 7
On the positive side, a very high percentage of our employees are proud
to work for the firm, which I believe is consistent with their perception
of Neuberger Berman as a client-focused organization. In contrast, we
failed to surpass our benchmarks in providing employees with coaching
for development from their immediate managers. We have already begun
to address this, emphasizing with our managers the importance not only
of talent management and development but also of establishing effective
two-way lines of communication with those they oversee. In addition, we
are empowering employees at all levels of the organization by bolstering
the range of learning and engagement programs we offer, from network-
ing groups and mentoring programs to continuing education support and
in-house training.
While we celebrate the strong results, we conduct these surveys not
to pat ourselves on the back but to identify areas in which we can still
improve. And while the data and insights gleaned from these surveys
have helped us make Neuberger Berman a place where people want to
spend their careers, we need ongoing engagement and free communi-
cation across all levels of the firm. My door is always open—especially
to the 1% of employees who in the survey responded unfavorably to
“I understand the firm’s mission”!
INNOVATION WITH PURPOSE
As I mentioned at the beginning of this letter, Neuberger Berman is in
robust health; in fact, the firm has never been in a stronger position
strategically or financially. However, the asset management industry is
changing as fee pressures, new regulations and evolving investor pref-
erences push our business in new directions. We must change with it.
Inherent in our alignment with clients is a commitment to innovation,
a firm-wide drive to uncover new solutions as markets and client needs
evolve. One of the many benefits of being 100% employee-owned is
that we are not subject to the same quarterly pressures and growth
targets faced by our public peers. Instead, we are free to grow at an
appropriate pace, to innovate with purpose and to focus on practical
client applications. While there’s not enough room in this Annual
Report to detail all of the initiatives underway within the firm, below
I highlight a few areas in which we’ve made significant progress in
preparing the organization for the challenges of tomorrow.
8 | NEUBERGER BERMAN ANNUAL REPORT 2017
Forging a more global business. While Neuberger Berman
historically was a U.S.-centric franchise, we have made great strides in
making our business truly global; in 2017 net new client assets flowed
nearly evenly from the Americas, Europe and the Middle East, and Asia.
This is gratifying, as an important strategic initiative for our firm over
the last decade has been to expand our global capabilities, from both a
client and an investment perspective.
We see great promise in China, and we have made considerable invest-
ments in the region over the past several years as a result. China is a big
country, but it also has distinct market segments, cultures, geographies
and citizens in different and constantly evolving stages of development.
These nuances and the reality of rapid change can lay traps for investors
who are not on the ground in China and deeply familiar with its local
markets, culture, business practices and governmental agencies.
Early in 2017 we established a new China equity investment team
under the leadership of Bin Yu, co-located in Hong Kong and Beijing.
Bin and his team of research analysts brought to the firm strong local
expertise and experience in the China equity markets, taking a long-term,
high-conviction, value-oriented investment approach to China equities.
While we initially are offering Bin’s strategy as a private fund, over time
we expect to expand the range of capabilities offered. In addition to Bin’s
strategy, we maintain a substantial minority ownership stake in Green
Court, an independent firm established by Frank Yao and his Greater
China investment team. On the fixed income side, the Emerging Markets
Debt (EMD) team recently added Peter Ru as a senior portfolio manager
to lead its efforts in the Chinese local market, including the China Bond
strategy launched in 2016. And we’ve asked Ping Zhou, who currently
manages a systematic emerging markets equity strategy out of New York,
to relocate to Shanghai to extend our quantitative capabilities in the region.
We are also focused on building our local footprint in an effort to tap
into the previously restricted domestic China market. Last year we
joined a short list of global managers granted a license to establish a
local investment management WFOE (wholly foreign owned enter-
prise): Neuberger Berman Investment Management (Shanghai) Limited.
Next we hope to secure final registration from the Asset Management
Association of China (AMAC) to start managing assets for mainland
China institutional and high-net-worth investors. The final license we
aspire to earn is a Qualified Domestic Limited Partner license from the
Shanghai government, which, distinct from the AMAC registration,
would allow us to invest Chinese capital globally. To spearhead our
China business, Patrick Liu has joined us as Head of China and General
Manager of the WFOE.
Taiwan is another key market for our business. In August, we were
joined by 70 clients from 25 distributors to celebrate the launch of
Neuberger Berman Taiwan (SITE) and the IPO of our first onshore fund
in Taiwan. While our previous license allowed us to maintain only a
distribution office selling our offshore UCITS funds, our newly acquired
SITE (securities investment trust enterprise) license enables us to better
leverage the firm’s broader investment platform and offer customized
solutions tailored to the Taiwanese market. This unit is already receiving
accolades, having been named “Best Responsible Investor” by Asia
Asset Management in its 2018 Best of the Best Awards.
Asian markets in general in 2017 have shown considerable interest in
our growing thematic research investment platform. Leveraging the
deep sector expertise of our Global Equity Research team led by Tim
Creedon, our thematic investing efforts seek to identify and capitalize on
“megatrends”—the big shifts in society, the economy and technology
that will shape the world over the long term. Getting these themes right
may offer significant opportunity for investors. The chart below depicts
the world’s 10 largest public companies in 2007 and in 2017; as you
can see, tech-related companies now account for seven of the top 10, up
from one only a decade ago. We see a number of megatrends that may
drive disruption over the next 10 years, and the team has experienced
impressive demand behind a number of global themes including auton-
omous driving, 5G/next-generation networks and global fintech. Looking
ahead, we see significant growth potential as this business scales, both
across geographies and with new global themes.
In the Western Hemisphere we recently entered into a partnership
agreement with Becon Investment Management, which will enable us
to distribute our UCITS funds range to a broader group of clients in
Latin America through the region’s private bank independent wealth
managers and multi-family offices.
Of course, a big part of maintaining a global presence is keeping up
with the ever-changing regulatory environment in all the regions and
countries where you plant your flag. In recent years, investment managers
have had to adapt to a variety of new rules that have resulted from
such regulatory efforts as Basel III, Solvency II and Dodd-Frank.
Throughout 2017 much focus was paid to ensuring our business would
be prepared to adhere to the new MiFID II regulations in Europe once
they came into effect on January 3, 2018. The new law, which has been
estimated at 7,000 pages in length, is intended to standardize the
regulation of investment services and products across the European
Union and to promote transparency in markets and the protection of
investors. A key operational focus going forward will be planning for
the various potential outcomes of Brexit; though the terms of the U.K.’s
exit from the EU are still very much in flux, we are confident in our ability
to deliver on behalf of clients in any scenario that emerges.
Turning ones and zeros into actionable research. We believe that
data is going to be a critical battleground in the search for alpha over
the coming decades. As the world grows more and more connected,
human beings are generating 2.5 quintillion bytes of data every day, from
MEGATRENDS SHAPE THE WORLD
World’s Largest Companies by Market Capitalization, U.S. Dollars in Billions
2007
2017
Exxon Mobil
General Electric
ICBC
Microsoft
Petrochina
AT&T
Citigroup
Royal Dutch Shell
China Mobile
Bank of America
Source: Bloomberg.
469
392
271
269
241
237
234
233
217
216
Apple
Alphabet
Microsoft
Amazon
Facebook
Tencent
Berkshire Hathaway
Alibaba
Johnson & Johnson
Exxon Mobil
Technology-Related Company
870
731
661
572
519
496
492
441
378
356
2017 ANNUAL REPORT NEUBERGER BERMAN | 9
cellphone calls to credit card transactions to web browsing. Collected,
monitored and analyzed, this so-called “digital residue” can reveal unseen
patterns at the macroeconomic, industry and company levels, an obvious
boon for managers like Neuberger Berman that seek to identify fundamen-
tal trends that allow us to make better investment judgments. In 2017 we
hired Michael Recce, a veteran of both hedge funds and a sovereign wealth
fund, as our first Chief Data Scientist; with his background in machine
learning and artificial intelligence, Michael will lead our efforts in harness-
ing big data in support of our portfolio managers and research analysts.
Big data is not an end in and of itself; the processing and interpretation
required to glean real insights from big data suggest that it only can en-
hance—not replace—traditional methods of fundamental company and
industry analysis. One of the things big data can do is enable a new level
of precision to fundamental research by capturing the ephemera that
does not appear on a company’s quarterly financial statements, helping
analysts and portfolio managers make better, more informed decisions.
In our view, the Holy Grail of big-data applications in the investment
management space will be a “quantamental” approach in which
traditional fundamental research is combined with quantitative
investment techniques in a way that seeks to capitalize on the best
attributes of each. For example, while quants may be more advanced
in portfolio construction and risk management, they lack the foresight
and predictive acumen that is the bread and butter of fundamental an-
alysts. By uniting human intuition and judgment with machine learning
and bringing informed forecasts together with historical patterns, we
believe a quantamental approach can give portfolio managers a fuller
view of their investments and the world in which they operate.
Part of the big-data revolution will be related to changes in technology
and the way we allow technologists the creativity to perform their tasks.
Of course, there are cultural challenges in combining traditional equity
research and data science, but we are confident that our employees
will recognize the client benefits that can be derived from this emerging
competitive advantage. (You can read more about our big-data efforts
on page 29.)
Leveraging private market opportunities. We continue to build
out our presence in nonpublic equity and debt markets, capitalizing
on our strong franchise to source new and innovative investment
opportunities for our clients. We trace our roots in the private equity
industry back 30 years, to a point when private equity was limited to
venture capital and buyout funds in the U.S. Today, of course, private
equity extends across strategies, asset classes and geographies, all
offering distinct risk-return profiles for investors. We’ve made a point of
evolving with the markets over time.
With valuations in the private markets rich and more deals coming online,
investment discipline is more important than ever. One way we exercise
discipline is by targeting general partners who have a history of both
sourcing high-quality private equity deals and creating value in these
businesses through operational improvements. Our Alternatives team
has relationships with hundreds of private equity general partners and
over the past three years has committed an average of $7 billion annually
across the NB Private Equity platform. We are a limited partner in more
than 450 active funds and sit on over 130 advisory boards, which we
believe benefits our entire platform. Within our specialty direct strategies,
we focus on unique investment areas where we believe we have true
competitive advantages and can offer compelling risk-adjusted returns.
The strength of our private equity platform and the broad base of relation-
ships we have been able to develop reverberate across our platform, as
evinced by the investment opportunities to which our teams gain access.
Our Private Investment Portfolios team, under the leadership of Peter von
Lehe and Jonathan Shofet, reviewed about 200 investment opportunities
in 2017, while Brian Talbot, Tristram Perkins and the Secondary team con-
sidered about 270. David Stonberg and David Morse guided the Co-Invest-
ment team to a record 220 prospective investment reviews last year. Our
Private Credit team also takes advantage of the connectivity of our Private
Equity platform. In September the NB Private Equity Credit
Opportunities Fund closed on $1.1 billion of limited partner commitments;
our Private Credit business, led by Susan Kasser and David Lyon, now
manages $3.1 billion in committed capital focused on the credits of
private-equity backed companies in both the primary and secondary markets.
Dyal Capital Partners, headed by Michael Rees, is a leader in the acqui-
sition of minority equity stakes in alternative asset managers, having
established partnerships with 26 of the industry’s leading hedge fund
and private equity firms since its formation in 2011. Over the course
of 2017 we made strategic investments in five companies, including
Cerberus Business Finance, Atalaya Capital Management, TSSP and
Sound Point Capital. Dyal Capital Partners III closed in in early 2017
with $5.3 billion in committed capital. In addition, I’m proud to note
that Dyal won the “Hedge Fund GP Investor” award at Institutional
Investor’s 15th Annual Hedge Fund Industry Awards.
In Italy, the recent launch of tax-advantaged individual savings accounts
(known as PIRs) combined with the ongoing funding needs of mostly
family-run small and medium-sized enterprises (SMEs) has created an
10 | NEUBERGER BERMAN ANNUAL REPORT 2017
interesting opportunity for investment managers. This is particularly true
for managers with private equity expertise, as we believe that investors in
Italy can extract greater value from private equity investments than from
public markets; while private equity activity in Italy has grown significant-
ly, the market remains highly underpenetrated. To this end, in December
we acquired ownership of Fondo Italiano di Investimento, an acquirer
of minority stakes in Italian SMEs. Members of the Fondo Italiano team
joined our existing private equity operations in Italy, which includes
Renaissance Partners, a private equity fund we formed in 2015 in
partnership with Intesa Sanpaolo that seeks to align with leading Italian
companies to help promote their growth and internationalization.
It was an exciting year for the specialty side of our Alternatives
business. In conjunction with our strategic partner Athyrium Capital
Management we closed Athyrium Opportunities Fund III, a $2 billion
vehicle that seeks to make investments in commercial-stage health
care companies—both private and public—in North America, Europe,
Asia and Australia. Marquee Brands, our brand acquisition, licensing
and development company, recently acquired the entire portfolio of
brands from BCBG Max Azria Global Holdings, including BCBGMAX-
AZRIA, BCBGGeneration and Herve Leger. The fourth, fifth and sixth
investments for Marquee—after the previous acquisitions of Bruno
Magli, Ben Sherman and Body Glove—step firmly into women’s
fashion and diversify our portfolio in the process.
More broadly, we’ve been able to leverage the strength of our private
markets platform to deliver added value to client relationships across
Neuberger Berman. For example, we recently partnered with a large U.S.
insurance company to help manage its fledgling private equity allocation
as it continues to search for new sources of yield after many years of
very low interest rates. Through a registered private equity fund and a
private equity co-investment fund, we give clients of our key intermediary
partners access to institutional-quality private-market strategies. Also
with access to these strategies are clients of our high net worth business,
where we continue to expand our investment and service offerings while
enhancing the technology we employ to support these clients.
We are seeing differentiating opportunities in structured credit as well,
in many cases as a result of post-crisis regulations enacted in the U.S.
and Europe. For example, collateralized loan obligations—actively
managed securitized portfolios of leveraged loans divided into tranches
bearing different levels of risk and potential return—disappeared in
the aftermath of the financial crisis but are again of interest to inves-
tors given attractive risk-return profiles and low interest-rate sensitivity,
among other potential benefits. The CLO comeback was buoyed in
part by new regulations in the U.S. and Europe designed to mitigate
their structural risk, including a new risk-retention rule that mandates
managers retain 5% of the original value of the assets in their CLOs.
To meet this requirement, in July 2017 we closed on our CLO risk-
retention vehicle, Neuberger Berman Loan Advisers.
Under the leadership of Joe Lynch and Steve Casey, Neuberger Berman
was a top 20 new-issue CLO manager in the U.S. in 2017, and we
currently have approximately $6 billion under management in 13 CLOs.
Leveraging our experience as a CLO collateral manager, in 2018 we
plan to launch a UCITS fund in Europe focused on investing in CLO
mezzanine debt tranches sourced from both primary and secondary
markets. Managed by Pim van Schie, the fund will allow investors
targeted access to subordinated CLO tranches that continue to offer
attractive yield pickup relative to like-rated high yield debt.
Private market residential loan opportunities are another attractive
alternative to public markets given improving housing and consumer
credit fundamentals, diminished volumes and low new supply. Mort-
gage accessibility remains a challenge for prospective home buyers in
the Alt-A category of credit risk, primarily due to the tighter lending
standards that resulted from Dodd-Frank legislation. As they are
ineligible for inclusion in an agency mortgage backed security (MBS),
Alt-A mortgages are expensive for banks to originate and hold. Enter
nonbank lenders. Our U.S. Residential Opportunity strategy managed
by Terry Glomski seeks to capitalize on this underserved market by
building a diversified portfolio of higher-yielding residential mortgage
credit exposures, “expanded prime” mortgage loans chief among
them. By directly sourcing high-quality performing loans from qualified
mortgage originators—and securitizing pools of these mortgages to
create higher-yielding exposures—the fund can target underserved
segments of the mortgage market and may offer additional spread rel-
ative to agency or jumbo prime mortgages with limited additional risk.
2017 IN REVIEW: A RISING TIDE
In contrast with 2016, which we characterized in these pages as a
“bumpy ride higher” given the large range in which many risk assets
traded over the course of the year, 2017 was a remarkably smooth
trip, one that took a number of market indexes to new all-time highs.
Most asset classes plowed monotonically forward last year without
any of the brief pullbacks that typically help extend such rallies, as the
periodic emergence of potentially unsettling risk events—from tumult
in Washington to saber-rattling on the Korean peninsula to terrorist
attacks worldwide—were brushed aside by investors focused more on
fundamental improvements in earnings and economic growth.
2017 ANNUAL REPORT NEUBERGER BERMAN | 11
As shown in the chart below, double-digit returns were easy to find
among equity indexes in 2017. We heard a lot last year about the
domination of FANG stocks—an acronym for Facebook, Amazon,
Netflix and Google (currently known as Alphabet), but really a proxy
for a range of high-flying tech-related names. These large, high-quality,
growth-oriented stocks drove huge returns in benchmarks like the
Russell 1000 and (absent the Nasdaq-listed Netflix) finally pulled
the S&P 500 information technology index all the way back from the
depths of dot-com implosion in 2000. It’s worth noting that narrow-
ness of market sentiment historically has not been a good sign for
equity markets; it suggests the investors are chasing winners rather
than investing for broad-based growth, a phenomenon typical of
late-cycle behavior. These conditions are perhaps exacerbated by the
influence of passive investment strategies, which by design chase
winners; momentum begets momentum.
Oil continued to rebound in 2017, as Brent crude ended the year at its
highest price since 2014. Also notable in 2017 was the one-two punch
of emerging markets equity and debt, especially given the headwinds
many expected for financial markets in the developing world. Not co-
incidentally, we have continued to see strong interest in our emerging
markets equity and debt strategies, having also demonstrated strong
absolute and relative performance in 2017. Conrad Saldanha, who
leads our Emerging Markets Equity Fund, believes that despite the
market’s run-up in 2017 valuations remain reasonable given forecasts
of double-digit earnings growth this year. He continues to focus on
domestically driven stocks, with a bias toward small and mid-cap
names that tend to be under-researched.
Our Emerging Markets Debt team co-heads Rob Drijkoningen and
Gorky Urquieta remain similarly upbeat about prospects on the debt
side of the capital structure, especially in local-currency sovereigns, as
better economic prospects and stronger exports have helped emerging
currency fundamentals recover, leading to improved current account
balances. I’m proud to note that our EMD team was named Pan-Euro-
pean Fixed Income Manager of the Year 2018 by Morningstar in recog-
nition of their active management of the Neuberger Berman Emerging
Market Debt Hard Currency Fund. The team—including the fund’s lead
manager Bart van der Made—was cited for its “ability to generate
outstanding long-term returns compared to their peers, with a strong
risk-adjusted profile and a strong sense of stewardship.”
On the next page are our detailed predictions for 2017, produced each
year as part of our Solving series. As you can see, we did pretty well. We
whiffed on the stronger equity performance in Europe. We also were
a little early on our calls related to higher inflation and interest rates,
including the impact such trends would have on emerging markets.
HUGE ADVANCES IN MANY EQUITY SEGMENTS, MORE MODEST GAINS ELSEWHERE
As of December 31, 2017
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Source: Bloomberg.
Note: Returns in local currency except emerging markets indexes, which are in U.S. dollars.
12 | NEUBERGER BERMAN ANNUAL REPORT 2017
2017 SCORECARD
✓ GOT IT RIGHT
✗ GOT IT WRONG
ECONOMY
✓ Global growth outlook improving, but with a high level of uncertainty
✓ Global interest rate expectations moving higher as central banks
shift their stance
✗ Inflation risk increasing
✓ Recession risk abating as business cycle extends
EQUITIES
✓ Pro-business policies in U.S. may spur earnings growth and drive
stocks higher
✗ European equities facing headwinds due to low growth and political
uncertainty
✓ Japanese equities boosted by weak yen but threatened by reduced trade
✗ Better fundamentals in emerging markets threatened by U.S. dollar,
higher interest rate, trade rhetoric
FIXED INCOME
✓ Underweight developed market sovereigns, as rates are likely to rise
✓ Corporate spreads appear reasonable relative to historical levels and
good credit fundamentals
✗ EMD held back by negative implications of higher U.S. interest rates
and anti-trade sentiment
ALTERNATIVES
✓ Commodities are attractive as supply/demand imbalances correct
and inflation concerns rise
✓ Absolute return strategies are likely to benefit from increased volatility,
rising rates and diverging markets
✓ Opportunities to capture illiquidity premium in private debt with high
cash flow and short j-curve
2018 FORECAST: A FUNDAMENTAL REGIME
SHIFT IS UNDERWAY
We entered 2018 with caution, respectful of the momentum mar-
kets and the global economy built in 2017 but wary of the potential
impact of shifting dynamics—including tightening central bank policy,
plateauing economic growth and rising market volatility—as the year
goes on. The key themes we anticipate will guide investment decisions
in 2018 are shown below.
KEY THEMES FOR 2018
MACRO: GLOBAL INFLECTION POINT NEARS
• “Goldilocks” gives way to something more complicated
• Both monetary and fiscal policy are in motion globally
RISKS: CLOUDS GATHER AS THE YEAR PROGRESSES
• Geopolitical climate remains unsettled
• China accelerates structural reforms
FIXED INCOME: THE CHASE CONTINUES
• No end to the search for yield
• Credit drivers begin to change
EQUITIES: TWO-WAY MARKETS RETURN
• Market momentum could present opportunities to reduce beta
exposure
• Active management positioned to shine
ALTERNATIVES: FINDING OPPORTUNITIES AMID HIGH VALUATIONS
• Low-vol strategies for a more volatile world
• Sharpen quality focus in private assets
2017 ANNUAL REPORT NEUBERGER BERMAN | 13
SYNCHRONIZED GLOBAL GROWTH TOOK HOLD IN 2017…
8%
7%
6%
5%
4%
3%
2%
1%
0%
United States
United Kingdom
Euro Zone
Japan
Canada
China
Emerging Markets
World
2016
2017E
2018E
Source: Bloomberg. Note: Projections as of December 29, 2017.
Let’s start with the positive. All 45 countries tracked by the OECD
expanded last year, a synchronization that has only happened
three times over the past 50 years. The U.S. economy is running at
a growth rate above 3% over the past several quarters and is ap-
proaching full employment. Growth in the euro zone has broadened,
and the pace of expansion in the region is finally keeping pace with
the U.S. as it continues to recover from its double-dip recession.
Japan’s in the midst of its longest quarterly growth streak in more
than 20 years. China continues motoring along even as Beijing
pushes toward sustainable long-term reforms, and emerging markets
in general are benefitting from global growth, a stable commodity
complex and fundamental economic improvements that position
policy makers to better weather a downturn.
As you can see below, GDP growth is expected to remain broadly
positive in 2018 though down from 2017 in many economies and
flattish for the world as a whole. Though plateauing, this growth is
plenty robust to extend the expansion in corporate earnings world-
wide, which should be supportive of equities.
However, we expect conditions to become more complicated as
the year wears on and we continue to move farther away from the
central bank-dominated, low-rate/inflation/volatility environment that
has prevailed in recent years. First of all, monetary tightening should
really start to be felt about midyear, when year-over-year growth in
G-4 central banks’ balance sheets is expected to peak. Obviously,
the Fed is furthest along in terms of normalization. The hike in March
brought the upper bound of the fed funds rate to 1.75%, and the Fed
is forecasting two more increases in 2018. While its balance sheet
reduction has been uneventful so far, the runoff accelerates in 2018
and will reach its monthly maximum of $50 billion by the fall. It’s
really an unprecedented—and precarious—time for central banks as
they manage the unwind of years of extraordinary accommodation.
We’re basically in uncharted territory, and the Fed has a new hand at
the tiller in Jay Powell.
14 | NEUBERGER BERMAN ANNUAL REPORT 2017
…DRIVING CORPORATE EARNINGS GROWTH HIGHER
30%
20%
10%
0%
-10%
-20%
-30%
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
CY17E
CY18E
CY19E
United States (S&P 500)
Europe (STOXX 600)
Japan (TOPIX)
Source: Deutsche Bank, IBES estimates. Note: Projections as of December 29, 2017.
Though the Fed leads the normalization race, other major economies
are beginning to stir. Facing 3%-plus inflation and unemployment
at multi-decade lows, the Bank of England in November hiked its
benchmark rate for the first time in a decade, though it signaled that
further increases would come at a “very gradual” rate that is highly
dependent on the success of the ongoing Brexit negotiations. The
European Central Bank halved the pace of its bond buying in January
2018, and it tweaked its latest policy statement to suggest that it is
no longer biased toward further easing; rate hikes in the euro zone
are unlikely until at least 2019, however. And though the Bank of
Japan has been viewed as a laggard in terms of normalization, it
quietly became less accommodative in 2017, curbing the pace of its
monthly asset purchases such that its easing program is running well
below its ¥80 trillion annual target. Given improved economic and
inflation conditions in Japan along with the actions of other central
banks, it will be hard for the BOJ to resist formally reducing its stimu-
lus efforts at some point.
But while monetary policy is continuing to tighten, fiscal policy is only
now starting to open up meaningfully. Most notable in this regard
was the December passage of the U.S. Tax Cuts and Jobs Act of 2017.
Among its provisions, the $1.5 trillion tax bill permanently lowers the
statutory rate on corporations to 21% from the previous 35%. Many
investors thought that U.S. small-cap stocks, given their domestic
focus and relatively high effective tax rates, were particularly well
positioned to benefit from any corporate tax reform; in the year-plus
following Trump’s election, flows into small-cap strategies—espe-
cially passive ones—tracked the perceived likelihood of a tax bill’s
passage. However, as Judy Vale and Bob D’Alelio, portfolio managers
of our Genesis Fund, are quick to point out, the rush into passive
small-cap strategies overlooks the fact that a reduction in income
taxes benefits only those companies that pay taxes—meaning the
approximately one-third of the Russell 2000 that is losing money will
be unaffected. Judy and Bob advocate a bias toward high-quality
small-cap companies with strong free cash flow and solid balance
sheets, exactly the type of companies that stand to benefit from the
new lower statutory tax rate.
2017 ANNUAL REPORT NEUBERGER BERMAN | 15
Another important element of the tax bill is the move to a territorial
tax system in which a multinational company’s earnings are taxed
only in the country where they are generated and not again when
brought back to the U.S. The U.S. was one of the few remaining
economies that taxed corporations on their worldwide income at
regular domestic rates when that income was repatriated back to a
U.S.-based parent, which incented companies to hoard an estimated
$3.1 trillion in cash and marketable securities offshore. The new rules
should reduce this incentive, while a provision that allows for a one-
time repatriation of accumulated assets at a much lower rate should
help bring some of this money back to U.S. shores. In fact, we’ve
already seen some of the largest stockpilers of cash—including Apple
and Cisco—announce plans to take advantage of the new repatri-
ation tax. C-suites nationwide are considering how to allocate this
windfall; Marvin Schwartz, who leads our Straus Group of investors
focused on identifying undervalued U.S. equities, expects a lot of it to
go into shareholder-friendly activities like buybacks and M&A, which
should further shrink the U.S. market’s ever-contracting equity base.
I’d be remiss here if I didn’t note that while we’re upbeat about the
impact the recent tax bill will have on the bottom line of corporate
America and hopeful that consumers will feel a positive effect from the
changes to their taxes, neither of these is likely to do anything to solve
the long-term structural problem of inequality. The latest Survey of
Consumer Finances from the Federal Reserve—a triennial report on the
financial conditions of American families—showed what many of us
already knew intuitively: the share of wealth in the U.S. is increasingly
concentrated among the most affluent. The Fed reported that the top
1% of families controlled nearly 36% of the nation’s wealth in 2016,
up from about 30% when the modern version of the survey began in
1989. So ingrained is the sense of inequality in our culture that it’s
almost shocking to learn that in 1989 the bottom 90% actually held
a greater share of wealth than the top 1%; that 33% share in 1989,
however, now stands just shy of 23%. Given the robust performance of
asset markets in 2017—exposure to which disproportionately benefits
the wealthy—it’s safe to assume that the situation has only gotten
worse since the survey was conducted. These trends aren’t limited to
the U.S. A recent report from the World Economic Forum found that
wealth inequality has risen in 49 of the 103 economies in its study,
while poverty has increased in 17 of 29 advanced economies.
Unaddressed, these trends will have profound political, social and
economic ramifications down the line, especially as the retirement
savings crisis builds.
Of course, the tax bill wasn’t the only tailwind that emerged for corpo-
rations during the year. Though the Trump administration got a lot of
grief over its failure to deliver on certain of its highest-profile campaign
promises—think Obamacare repeal and a wall with Mexico—it did
earn many lower-key victories in its efforts to boost the economy, mainly
by steadily chipping away at Obama-era regulations. A recent survey by
Business Roundtable, an association of CEOs of U.S. companies, found
that for the first time in six years regulatory costs were not the top cost
pressure reported by business leaders. In contrast, recently announced
tariffs directed at Chinese imports are a step backward. Though it’s too
early to weigh the potential impact of these protectionist measures,
the guidelines of which—and retaliatory responses to—are still in
flux, we expect them to be unproductive. The rate of turnover in the
Trump administration also is troubling; as it is with any organization,
including our own, it is vital that the White House strive to attract and
retain talented and experienced people to help promote continuity and
confidence among American businesses.
Meanwhile, fiscal stimulus at this stage in the business cycle—105
months and counting in the U.S., the third longest on record—tends to
transmit more to inflation than marginal economic growth, especially
given the recent closing of the country’s output gap. There were already
signs that inflation in the U.S. is at a turning point. Though headline num-
bers for core personal consumption expenditures—the Fed’s preferred
inflation metric—continue to track below target, the pace of inflation
has picked up sharply of late in conjunction with the accelerating
economy. Though the year-over-year change in core PCE was 1.5% in its
January 2018 reading, the six-month annualized trend shows inflation
growth of 2.0%; similarly, 1.8% core CPI growth over the last 12 months
obscures the 2.6% annualized increase for the second half of the period.
Wage growth is improving, particularly in the low-wage segment that
has dominated job growth in the U.S. since the financial crisis, and
indicators like the employment cost index and the Atlanta Fed’s wage-
growth tracker also suggest labor’s pricing power is on the rise.
Persistently low inflation has been one of the factors keeping long
Treasury rates anchored even as the Fed pushed the short end steadi-
ly higher through hikes in the fed funds rate. The pickup in inflation
and economic growth drove the move in Treasury yields that saw the
10-year go from around 2.0% in September to 2.9% by early March.
The global rate tether, another rate-dampening factor, is also starting
to loosen. Though the BOE, ECB and BOJ are only slowly pulling back
from extraordinary accommodation, a retreat is underway and may
be hastened should nascent inflationary pressures accelerate.
16 | NEUBERGER BERMAN ANNUAL REPORT 2017
While developed markets are moving in the same direction, if
at different paces, there’s a huge disparity in terms of inflation
and interest rates across the emerging world. Central and
Eastern Europe appear locked into reflation, even if not all
central banks on the periphery of the euro zone seem to
have acknowledged the inevitability of reduced monetary
accommodation and higher interest rates. In contrast, output
gaps remain negative in Latin America; it’s likely Brazil will
continue to cut rates, while Mexico eventually will be forced
to reverse its current tightening cycle. Emerging Asia is
somewhere between these two poles, though with a clear
bias toward higher rates. China, of course, has been
maintaining tight policy for a while, predicated more on
deleveraging than inflation concerns; signs of inflationary
pressures have begun to peek through, however, and yields
on government bonds are back to 2014 levels.
Earlier this year we got a look at how all these shifting economic
conditions may manifest themselves in the financial markets.
Shaken by a better-than-expected reading on U.S. wage growth,
risk markets worldwide sold off sharply on fears that central
banks would be forced to unwind accommodation more quickly
than expected to stave off mounting inflationary threats. The
S&P 500, for example, entered correction territory over the
course of just 10 trading days beginning January 26, while
the MSCI EAFE lost just short of 9%. Volatility returned in force
as well. The CBOE Volatility Index at one point during this
panic pierced 50, a level not seen since the tumult of the
financial crisis in late 2008/early 2009. The VIX’s 10-year
average, which includes that high-volatility crisis period, is
around 20, and it spent most \of 2017 closer to 10. Similar
patterns can be seen in measures of volatility across a variety
of financial instruments, as shown to the right.
VOLATILITY ACROSS ASSET CLASSES REMAINS VERY LOW
Equity Volatility
50
40
30
20
10
0
2014
110
100
90
80
70
60
50
40
2014
13
12
11
10
9
8
7
6
5
2014
2015
2016
2017
2018
VIX Index
10-Year Average
Fixed Income Volatility
2015
2016
2017
2018
MOVE Index
10-Year Average
Currency Volatility
2015
2016
2017
2018
JP Morgan G-7 Volatility Index
10-Year Average
Source: Bloomberg. Data as of March 31, 2018.
2017 ANNUAL REPORT NEUBERGER BERMAN | 17
By early March, however, volatility had settled back into a range
around its 10-year average, which highlights a concerning trend as this
bull market wears on. Though the VIX is widely known as the stock
market’s “fear gauge,” in the era of massive QE it has really been more
of a “complacency gauge” as markets worldwide have pushed higher
through any number of shocks, be it the Brexit referendum, Trump’s
unexpected victory, terrorist attacks or recurring threats from North
Korea. Our experience tells us that markets tend to ignore these sorts
of things until they don’t. Uncertainty around NAFTA, an unexpected
adjustment to central bank policy, a marked slowdown in economic
growth in China—any of these could be the one that finally shakes
investors from their slumber.
And don’t discount political risk. After the wave of populism in 2016,
punctuated by the Brexit referendum and Trump’s victory in the U.S.,
2017 was a letdown for those who like upheaval in the halls of
government. Though there were a number of pivotal elections last
year—notably in Europe, where voters in France, Germany and the
Netherlands, among others, went to the polls—mainstream candidates
prevailed in all instances. The election calendar for 2018 may not
seem as exciting at face value, but it does hold the potential to upend
assumptions about the current political order. We’ve already seen a bit
of that in Italy, where an inconclusive parliamentary election in March
was marked by significant gains made by the populist, left-wing Five
Star Movement and the populist, right-wing League, giving pause to
those who had assumed the anti-establishment trend in Europe may
have peaked. Later this year we’ll have elections in a number of key
emerging markets, including Mexico, where the outcome may have big
implications for U.S./Mexico relations. Left-wing populist Andres
Lopez Obrador, outspoken critic of NAFTA and most things Trump,
is the clear front-runner for president at this point and a cause for
concern among investors and pro-business Mexicans.
In the U.S., Robert Mueller’s special investigation into Russian interfer-
ence in the 2016 election will continue to make headlines. Meanwhile,
midterm Congressional elections loom this autumn, and there is little
doubt they will be contentious. I suspect Democrats will retake the
House of Representatives in 2018, an advantage they may leverage to
initiate impeachment proceedings against Trump. While the odds of his
removal from office are slim, given our expectations that Republicans
maintain control of the Senate, one only needs to think back to the
sideshow of Bill Clinton’s impeachment in 1998–99 to understand the
distraction that may result. That said, it’s worth noting that U.S. equity
markets fared quite well during the country’s most recent brush with
presidential removal; though the S&P 500 fell nearly 20% in the six-
week period preceding the release of a report by independent counsel
Kenneth Starr—Clinton’s Mueller analog—it regained those losses and
then some once impeachment proceedings got underway.
In contrast, leadership in China appears stable for the foreseeable
future. President Xi Jinping recently engineered a constitutional amend-
ment abolishing term limits on the presidency, thus positioning him to
maintain that role for a remarkably long period. Xi’s consolidation of
power may result in greater long-term policy consistency and enhance
Beijing’s ability to effect the migration of the Chinese economy from a
debt-driven export model to a consumer- and services-based one, with
an emphasis on the quality of growth rather than the pace. As I men-
tioned earlier, Neuberger Berman sees great promise in China, in terms
of both investment opportunities and as a source of clients whom we
can serve. While China is already the world’s second-largest economy,
we think it has considerable catch-up growth potential; GDP per capita
remains relatively low, but it is growing fast, and rapidly improving
education levels are creating not only more informed and sophisticated
consumers but also an increasingly knowledge-based economy that
can compete with the global giants in their sectors.
Regardless of its cause, the return of volatility—even if only to histor-
ically average levels—could prove unsettling to unprepared investors,
and the margin for error isn’t great given full, but not overvalued,
equity valuations and tight credit spreads. What can help protect inves-
tors is a well-conceived plan built to buffer portfolios from the ravages
of a transitioning market. Portfolio construction and asset allocation
becomes more challenging in a world of high valuations and a mature
economic cycle. Going forward an investment approach should be
predicated on finding those asset classes and subsectors where mean-
ingful upside potential is still available, and then seeking to extract that
upside potential in more sophisticated, risk-controlled ways.
Options strategies are one example of this. Collateralized equity index
put writing strategies, which we manage through our Option Group
led by Derek Devens, offer investors lower-volatility exposure to the
broader equity markets. These strategies historically have captured
more equity market upside than downside over the long term3 and thus
may be particularly attractive for equity market investors interested in
a cost-effective alternative to buying put options as a hedge against a
3 As measured by the CBOE PutWrite Index versus the S&P 500 Index.
18 | NEUBERGER BERMAN ANNUAL REPORT 2017
decline in equity markets. Clients have shown continued interest in this
strategy, and our Option team more than doubled their assets under
management during the year.
Another approach is to capture alternative risk premia, which
historically has performed well when interest rates have risen at a
steady but moderate pace even if the cumulative increase was large.
To further our efforts in this space we were excited to acquire Breton
Hill Capital, a quantitative investment firm based in Toronto, Canada.
Breton Hill—consisting of co-founders, Ray Carroll, Simon Griffiths
and Frank Maeba along with 11 additional investment professionals—
joined our QMAC investment platform overseen by Erik Knutzen and
Doug Kramer. In all, they are a deep, passionate team that brings a
diverse set of investment skills to the firm, along with a robust tech-
nology and infrastructure platform that enhances our ability to offer
attractive returns from innovative and efficiently managed strategies,
and to customize client solutions quickly.
In fixed income, strategies that invest across fixed income sectors
have grown in popularity in recent years, and we continue to see
opportunity in such flexible mandates. That said, approaches to
multi-sector fixed income that have worked over the past five years
are unlikely to work nearly as well over the next five. As a result,
multi-sector investors will need to look beyond the usual income le-
vers of U.S. non-agency mortgages, U.S. high yield and hard-currency
emerging markets debt to incorporate additional sources of risk into
their portfolios. Last year we established a Multi-Sector Fixed Income
group under the leadership of Brad Tank, CIO of Fixed Income, to
extend our strategic commitment to customized multi-sector fixed
income investing. The group includes all of our Senior Portfolio Man-
agers with multi-sector responsibility—including Ashok Bhatia, who
joined us over the summer and has held senior investment positions
in several asset management firms and hedge funds—and formalizes
the close working relationship that has always been in place with the
management of our Opportunistic Fixed Income strategy.
ACTIVE MANAGEMENT CONTINUES TO
REBOUND
Active management delivered a solid 2017, and I think conditions
in 2018 will be even more favorable for fundamental-driven stock
pickers as two-way markets return. Our analysis of Morningstar
data shows that in 2017 50% of active U.S. stock funds beat their
benchmarks net of fees and transaction costs, compared to only 25%
in 2016.4 One reason for the improvement has been the decline in
correlations between stocks. For the S&P 500, for example, correlation
went from around 0.60 at the beginning of 2016 to less than 0.10
by the end of that year and remained in a lower range through much
of 2017; similar trends can be seen in a variety of equity markets
globally. This is refreshing after many years in which stocks were
indiscriminately propped up by waves of central bank liquidity.
Financial services stocks in general are expected to benefit from the
removal of this liquidity via higher interest rates, and the recent tax
bill should also prove beneficial to these companies over the long
term. Richard Nackenson, who runs our Multi-Cap Opportunities
Fund, has a fairly large overweight in the financial services sector and
cites JPMorgan as a company that he expects will benefit from the
new tax laws and the improving economic and regulatory backdrop,
especially given management’s tendency to return significant capital
to shareholders through growing dividends and share repurchases.
FAREWELLS
Despite our very high retention rate, people do retire. There are two
professionals in particular whose upcoming departures I wanted to note.
After 38 years with Neuberger Berman, Bobby Conti will step away from
his day-to-day responsibilities working with our ’40 Act and UCITS funds
this summer. Our mutual fund shareholders will continue to benefit from
Bobby’s deep knowledge and broad experience, however, as he will re-
main a member of the mutual fund board. Andy Johnson, Head of Global
Investment Grade Fixed Income, will retire at the end of 2018 after 28
years with the firm. Andy was a true steward of our clients’ capital over
his tenure, and the strong foundation he built for the Global Investment
Grade team gives us great confidence as we transition the leadership of
the business to Dave Brown, the Head of Investment Grade Credit who
has worked side-by-side with Andy for 23 years.
I’d like to thank Bobby and Andy for their many years of dedication to
Neuberger Berman and wish them well in retirement.
4 Based on analysis of all actively managed U.S.-domiciled open-end equity funds data from Morningstar. Performance is based on fund’s oldest share class relative to its primary prospectus benchmark.
2017 ANNUAL REPORT NEUBERGER BERMAN | 19
This fall will mark 10 years since the depths of the financial crisis, a
time when the global financial system itself seemed to be in jeopardy.
Many things have changed since then, of course, and while these
changes have made for a more stable investment environment, they
present a whole new set of challenges for those seeking to navigate
it effectively. As an organization we remain committed to the
development of innovative investment solutions to overcome these
challenges on the behalf of our clients, regardless of what the next
10 years may bring.
On a more personal note, 2008 also set in motion the events that
would result in Neuberger Berman emerging as an independent
company once again. The past 10 years have been a remarkable period
for our firm, one in which we are proud to have performed for our
clients. On the pages that follow you’ll hear from professionals across
the firm. While many have been here throughout the tumultuous post-
crisis period and some joined us more recently, all are now united
around a single goal: delivering compelling investment results for
our clients over the long term.
As always, we are grateful for your partnership.
20 | NEUBERGER BERMAN ANNUAL REPORT 2017
JONATHAN BAILEY
HEAD OF ENVIRONMENTAL, SOCIAL
AND GOVERNANCE (ESG) INVESTING
P E R S P E C T I V E S
O U R C O M M I T M E N T T O E S G I N T E G R AT I O N
Neuberger Berman believes that material environmental, social and governance (ESG)
characteristics are an important driver of long-term investment returns, from both an
opportunity and a risk-mitigation perspective. We also understand that for many of our
clients the impact of their portfolio is an important consideration in conjunction with
investment performance.
The firm has considered ESG characteristics in investment processes as far back as the
1940s, and the breadth and depth of integration across our investment platform has grown
steadily since then through bottom-up innovation by individual teams. For example, our
Sustainable Equity team was established in 1989, our Emerging Markets Debt team formally
integrated ESG factors as a core part of their sovereign credit rating process in 2010, and
our Investment Grade and Non-Investment Grade fixed income research teams did the
same for corporate credit in 2014. In 2017 we built out a dedicated ESG Investing team,
reporting to Joe Amato, President and CIO—Equities, charged with accelerating the integra-
tion of ESG factors into fundamental research and investment processes, developing new
investment strategies, and enhancing collaboration across the firm and with clients.
Engagement, including how we vote proxies on behalf of clients, continues to be a focus
of the firm. In 2017 we were proud to support shareholder proposals calling for disclosure
around climate change at oil & gas and utility companies and gender pay equity reports at
technology and financial services companies. We opposed at least one vote at 49% of all
the companies that we voted at in 2017. However the real test of being an engaged long-
term owner is the impact we have through our private dialogues with management teams
and board members every day. Detailed engagement case studies from our equity and fixed
income teams can be found on www.nb.com/esg.
Supported by our ESG Committee we continue to enhance our analyst-led ESG ratings
and deepen the integration of ESG factors into existing investment processes. We are also
pleased to be able to partner with clients on innovative new strategies—most recently
Municipal Impact and Private Equity Impact—that seek to deliver environmental and social
outcomes alongside market-level financial returns.
Finally, we have redoubled our collaboration with peers and clients in the industry as a
whole. We have been a signatory to the UN-supported Principles for Responsible Investment
(PRI) since 2012, and have played a leading role in the PRI’s work on fixed income engage-
ment and credit ratings. We also became a founding member of the Sustainability Account-
ing Standards Board (SASB) Alliance in 2017, encouraging companies to disclose financially
material ESG data. And to demonstrate Neuberger Berman’s commitment to leading ESG
practices in our own business operations, we joined the UN Global Compact on human
rights, labor, environment and anti-corruption.
2017 ANNUAL REPORT NEUBERGER BERMAN | 21
B U S I N E S S R E V I E W : E Q U I T Y
JOSEPH V. AMATO
PRESIDENT AND CHIEF INVESTMENT OFFICER—EQUITIES
A Shifting Landscape
Returns across essentially all global equity markets were outstanding in 2017, driven by strong economic growth, low interest
rates and modest inflation. Markets were surprisingly resilient in the face of increasing fiscal policy uncertainty and the shift
in Fed policy from QE (quantitative easing) to QT (quantitative tightening). The slow (or speedy) transition to interest rate
normalization will be the most critical issue facing markets as we move into the late stages of the long economic expansion.
The MSCI ACWI, a broad-based index of global equity markets,
returned approximately 25% last year. The MSCI Emerging Markets
Index was the stand-out performer, up almost 38% in U.S. dollar terms.
The S&P 500 rose almost 22%, driven by improved U.S. GDP growth
and earnings growth near 11%. These returns were accompanied by
unusually low market volatility throughout the year. Positive momen-
tum has continued into early 2018, even as bouts of renewed volatility
have caused some consternation among investors. However, we expect
risks—including tightening central banks, plateauing economic growth
and geopolitical discord—to increase as the year progresses, which
combined with already-extended valuations suggest to us that the
beta-driven returns of stock markets in recent years may give way to
more modest results.
Active management, in our view, can help. The rebound of active
management in 2017 was a timely reminder that relative performance
trends have long been cyclical. The continued move toward interest
rate normalization could further enhance the environment for
fundamental stock selection, as the unusually high correlations be-
tween individual stocks over much of the current cycle presented
a challenge for active managers.
To better support their clients, however, investment managers likely will
need to sharpen their value propositions by constructing high-conviction
portfolios and becoming even more engaged with the companies they
hold. A high level of engagement has long been a hallmark of Neuberger
Berman’s long-term, low-turnover investing approach, and engagement
on a range of topics, including ESG, will continue to be a focus of ours.
The proliferation of data is another important development in the
investment management world, as managers continue to search for more
efficient ways to gather this information and develop truly proprietary,
value-added insights from it. We established our Data Science team, led
by Chief Data Scientist Michael Recce, to help our investment organization
leverage this “big data” opportunity. We have already seen the benefits,
with our portfolio managers and research analysts gaining fundamental
investment insights from these new data sources. We believe big data will
be the key battleground for alpha in the coming years.
Our equity investment capabilities are both broad and deep, and we
are well positioned to capture the wide range of alpha sources for
the benefit of our clients. The next investment cycle undoubtedly will
be different than the one currently nearing its end. Our teams remain
intensely focused on delivering value for our clients no matter the
environment, and I am confident in our ability to achieve this goal.
2017 ANNUAL REPORT NEUBERGER BERMAN | 23
E Q U I T Y
INTERNATIONAL EQUITY
EMERGING MARKETS EQUITY
Our International Equity team seeks to
identify best-of-breed non-U.S. companies
across sectors, countries and market caps.
Synchronized global economic growth
was the story for 2017, as all 45 countries
tracked by the OECD expanded during the
year. The euro zone posted its best full-
Benjamin E. Segal, CFA
year growth rate since 2007, as recovery broadened beyond
Germany to include such recent laggards as France and Italy.
Notably, fears that a busy 2017 European political calendar
could disrupt markets proved unfounded, as mainstream
candidates were successful in all major races. Japan, mean-
while, is in the midst of its longest quarterly economic growth
streak in nearly 30 years. Strong markets in early 2018 have
lifted equity valuations to relatively high levels, while volatility
returned to global equity markets in February. In combination,
this can provide an opportune environment for the bottom-up
stock picker. With global growth accelerating, we believe
certain companies stand to benefit directly from increased
economic activity, while investor optimism in some sectors
appears excessive. As always, decisions are made company
by company on a bottom-up basis with an eye on potential
risk as well as potential return.
Our Emerging Markets Equity team empha-
sizes high-quality companies that we believe
stand to benefit from domestic growth and
the global consumer. We seek these oppor-
tunities across the market-cap spectrum
and across sectors as well. Therefore, our
investment process begins with a universe of
Conrad A. Saldanha, CFA
more than 12,000 companies compared to only around 800 for
the MSCI Emerging Markets Index, which is predominantly large-
cap focused. As of year-end 2017, we maintained an overweight
bias to small/mid-cap names versus the index, as we believe many
of these smaller companies are under-researched and offer the
potential for attractive returns and diversification benefits and are
more focused on domestic growth. Emerging equity markets in
2017 experienced a strong rally, driven primarily by robust
corporate earnings but also boosted by appreciating currencies.
Despite last year’s run-up, we believe valuations still appear
reasonable, and double-digit earnings growth is forecast for 2018.
We believe domestically driven names still have the potential to
deliver solid risk-adjusted returns going forward. They also should
be relatively less impacted by trade disputes, and we are therefore
comfortable maintaining our focus in this area.
CHINA EQUITY
Bin Yu
Our China Equity team takes a long-term, value-oriented approach to investing in Greater China equities. Co-located in
Beijing and Hong Kong, the team employs rigorous original research to identify companies that are positioned to bene-
fit from sustainable long-term trends and meaningful changes, and builds concentrated portfolios of high-conviction ideas.
For China’s equity markets, 2017 was a year of recovery—in earnings, sentiment and valuation—and stocks rallied
sharply as a result, led by technology shares. In early 2018 conditions seem at least equally upbeat. After two years of
strong performance, China equity markets are seeing solid inflows from both global investors and domestic institutions.
Economic growth is slowing but stable, and signs of a potential comeback of pricing power would be constructive for
corporate earnings and margins. While risks—including looming deleveraging—persist, the environment of decent
growth and modest inflation leads us to be positive on China equity markets for 2018.
24 | NEUBERGER BERMAN ANNUAL REPORT 2017
MULTI CAP OPPORTUNITIES: THE NACKENSON GROUP
EQUITY INCOME: THE MESSINGER GROUP
Richard S. Nackenson
The Nackenson Group manages the Multi Cap
Opportunities strategy, which is designed to
serve as a core equity portfolio for clients. We
invest across market capitalizations, sectors
and styles with an emphasis on free cash flow
generation and capital allocation. Our portfolio
consists of 30 to 40 core holdings across three
distinct categories of stocks—Special Situation, Opportunistic and
Classic investments—that provide unique sources of alpha. In 2017
S&P 500 pairwise correlations declined significantly as company-
specific drivers were in focus. High-conviction active managers have
the potential to generate alpha through stock selection in this
setting. Our team was able to capture this opportunity. We believe
continued growth in the U.S. economy, a pro-business environment
and acceleration in earnings growth create a ripe atmosphere for
active management and free cash flow oriented investing. Company
balance sheets are healthy, and free cash flow generation remains
strong. It is our view that management teams are well positioned
to create value for shareholders by allocating capital effectively.
Dividend increases, share repurchase programs, cash accumulation,
debt retirement, organic growth initiatives, selective and highly
accretive acquisitions—all can accrue to the benefit of equity
holders. We believe deep fundamental analysis centered on free cash
flow and capital structure efficiency may be an important driver of
performance going forward.
The Messinger Group has
been serving clients’ unique
needs for nearly four decades,
delivering customized invest-
ment solutions for individuals,
families and institutions based
on well-defined goals span-
ning multiple generations. The
Messinger Group embraces
a flexible approach when
constructing strategies for our
clients and offers solutions
ranging from income-ori-
ented to traditional equity
Richard S. Levine
Sandy M. Pomeroy
David S. Portny
William D. Hunter
portfolios. In 2017, growth outperformed value by the widest margin in
recent memory. The S&P 500 generated a positive return every month as
volatility stayed at or near record lows. In fact, the market didn’t have a
single day when it was up or down by 2% or more. While many defensive
securities lagged, there were opportunities tied to an improving economy.
In the year ahead, we feel equities remain largely supported by healthy
corporate results and view tax reform as a structural tailwind for
earnings growth potential. Moreover, 2018 could be an inflection point for
central banks. At this point in the cycle, we believe investors can benefit
from emerging wage and inflation trends. While we remain constructive
on the pace of economic expansion, we feel the recent period of unprec-
edented low volatility could continue to be tested. Overall, we believe a
focus on high-quality, cash-generating companies remains critical.
LARGE CAP VALUE
Eli M. Salzmann
David Levine, CFA
The Large Cap Value team utilizes a value investing discipline with a patient, conviction-based approach,
conducting independent, bottom-up fundamental and quantitative research to identify nuances of each
company that cannot be captured solely by financial characteristics. The top 20 stocks as of the end of
2017 accounted for a significantly higher portion of the portfolio weight than the top 20 stocks in the
Russell 1000 Value Index, demonstrating the active approach the strategy takes. 2017 was a year of good
gains for equities, with minimal volatility and pullbacks; we feel 2018 will be different, though. Currently,
the economy looks like it is growing at a decent rate and now has the tailwind of tax reform; however,
monetary policy is no longer as accommodative globally, and we think there is a higher potential for some
negative developments over this coming year than we have seen in the past few years. We are bottom-up
managers and will continue evaluating all market dislocations for investment opportunities.
2017 ANNUAL REPORT NEUBERGER BERMAN | 25
E Q U I T Y
MID CAP INTRINSIC VALUE
SMALL CAP INTRINSIC VALUE
Michael C. Greene
The Mid Cap Intrinsic Value strategy seeks to
invest in high-quality companies trading at
a meaningful discount to the team’s intrinsic
value estimate where a strategic event could
potentially unlock value. For example, M&A
activity was supportive of our strategy in
2017, as two of our portfolio companies were
acquired at substantial premiums during the year. Market volatility
remained low in 2017, and individual companies that failed to
meet analyst expectations were punished severely; value companies
selling at material discounts and undergoing change can experience
temporary disruptions as their new strategic plans are being
implemented. While the portfolio’s discount to our intrinsic value
estimate has narrowed, we expect some of our newer positions
to begin appreciating and anticipate some price improvement in a
number of our lagging positions as managements’ strategic plans
solidify. With the bull market entering its ninth year, we believe
stock market returns will be weaker in 2018 and individual stock
picking could become more meaningful. We believe our cash-
generating franchise companies have the potential to deliver solid
returns in what could be a less robust market moving forward.
SMALL AND MID CAP GROWTH
Benjamin H. Nahum
Amit Solomon, PhD
James F. McAree
The Small Cap Intrinsic Value strategy seeks to invest in companies
that trade at a meaningful discount to the team’s estimate of intrinsic
value where a strategic event can potentially unlock value. The strategy
in 2017 benefitted from momentum and positive surprise. Recently,
we actively reviewed our portfolio with the objective of enhancing
the risk-reward profile and have increased our exposure to consumer
and health care companies while gradually rebalancing our more
cyclical technology and producer durable investments. Given the
challenges associated with being a patient value investor, we decided
to take a more active approach with certain companies and engaged
the boards of several of our undervalued long-term investments
around strategy and directors. We believe the portfolio is an attractive
mix of growth and value opportunities, well positioned to benefit
from important secular trends. We expect 2018 to be a rollercoaster
year. As expectations have increased, disappointments, either broad
or company-specific, will probably result in swift corrections.
Our team seeks to identify small- and mid-cap companies trading at what we believe are compelling
prices based on a strong competitive position, a healthy financial state and an identifiable—and ideally
unappreciated—catalyst for growth. Both of our strategies actively challenge their benchmarks and peer
groups through high-conviction out-of-index positions (of up to one-third the respective portfolios) and
reasonable over- and underweight allocations at both the sector and industry levels, while still main-
taining the appropriate aggregate-level style and market capitalization expectations for small-cap and
mid-cap growth mandates. 2017 was a tremendous year for equities—growth in particular—and it also
was a constructive environment for active managers and higher qualitative approaches such as ours.
There was a return to relevancy for underlying stock fundamentals, and the market appeared to have a
renewed appreciation for forward-thinking, strategic capital-reinvestment strategies over the dominant
post-crisis trend of financial reallocations back to shareholders. While we don’t anticipate markets in 2018
will mirror the robust returns and fascinating calm of 2017, we are cautiously optimistic that the U.S. will
remain a pro-growth environment, corporate earnings will continue to impress and support valuations,
and that the landscape will remain largely positive for active management and higher qualitative and
differentiated small- and mid-cap growth companies.
Kenneth J. Turek, CFA
Chad A. Bruso, CFA
Marco Minonne, CFA
Trevor Moreno, CFA
26 | NEUBERGER BERMAN ANNUAL REPORT 2017
SMALL CAP
Robert W. D’Alelio
Judith M. Vale, CFA
The Small Cap team seeks high-quality businesses with
above-average, sustainable growth prospects selling at
or below-average valuations. We focus on less volatile,
less economically sensitive businesses and avoid specu-
lative names that are dependent on economic growth
and require healthy capital markets. Looking ahead,
global economic activity has been ticking up of late,
and recently passed tax legislation in the U.S. is likely
to add to this momentum. Strong economic conditions
are finally beginning to exert upward pressure on labor
rates, which are leading to early signs of inflation.
Confirming these trends, interest rates have been
creeping up at both the short and long ends of the yield
curve. While we think rates are still below levels likely
to curtail economic expansion, we will be monitoring these trends closely. We
believe that our companies with below-average leverage or net-cash balance
sheets could be relative winners in a rising-rate environment.
SUSTAINABLE EQUITY
The Sustainable Equity strategy, which we launched
in 1989, incorporates business, financial and environ-
mental, social and governance (ESG) factors to identify
30 – 40 high-quality companies that we believe have
the potential to deliver attractive returns over a three- to
five-year period. Looking back at 2017, S&P 500 returns
outpaced earnings growth, as multiples continued to
expand within a backdrop of slow, steady economic
growth, low inflation, low volatility and supportive mon-
etary policy. This environment benefitted stocks with high
revenue growth. Returns of many established businesses
lagged, as investors became concerned about the threat
posed by disruptive technologies to such businesses’
growth and profitability. This environment also provided
Ingrid S. Dyott
Sajjad S. Ladiwala, CFA
some attractive investment opportunities to add best-in-class companies
that meet our quality criteria while exiting certain positions, generally based
on valuation considerations. We look at a wide range of ESG factors in the
businesses we own and track their aggregate impact on our portfolio; as one
example, as of September 30, 2017, our portfolio is 55% less carbon-intensive
than the S&P 500. Responsibility continues to be a hallmark of quality, and
we believe that in a slow-growth world the operating characteristics inherent
in certain businesses can translate top-line growth in the low- to mid-single
digits into stronger, advantaged bottom-line growth.
I N S I G H T S
CIO WEEKLY
PERSPECTIVES
Each week, our CIO Weekly Perspectives
blog delivers timely insights from the
leaders of our Equity, Fixed Income and
Multi-Asset Class platforms as well as
senior investment professionals from
across the firm. Offering interpretation of
the factors driving financial markets in an
approachable format, CIO Weekly Perspectives
seeks to prepare investors for the risks and
opportunities that lie ahead.
To subscribe to CIO Weekly Perspectives,
please contact us at CIOweekly@nb.com
2017 ANNUAL REPORT NEUBERGER BERMAN | 27
E Q U I T Y
MASTER LIMITED PARTNERSHIPS:
THE RACHLIN GROUP
U.S. AND GLOBAL REITS
The Rachlin Group manages income-oriented
equity strategies focused on master limited
partnerships (MLPs) that have the potential to
generate attractive dividend yields with a growth
component. The group seeks investments with
strong, recurring cash flows anchored by long-
term fee-based contracts. Only certain MLPs
meet the team’s criteria for long-term apprecia-
tion potential; we believe companies that have
favorable debt metrics and generate sustainable
cash flow can maintain and grow distributions
through market cycles. 2017 was a frustrating
year for the unit price performance of MLPs.
It appeared that investors’ skepticism toward
Douglas A. Rachlin
Yves C. Siegel, CFA
energy-related equities continued to linger following the decline
in oil prices during 2014 – 15. Certain individual MLPs continued to
struggle with high debt levels and the continuous need for further
equity issuance. In early 2018 we are encouraged by the combination
of strong business fundamentals, secular growth opportunities and
favorable valuation metrics for our companies. The domestic energy
industry continues its transformation toward becoming a global leader.
In our opinion, midstream infrastructure assets—such as pipelines,
storage and processing facilities—will become increasingly valued as
demand for U.S. energy continues to rise.
The Global REITs team
seeks total return through
investment in real estate
securities, emphasizing both
income and capital appre-
ciation. Throughout 2017
we maintained a quality
bias, investing in companies
with high-quality assets and
strong balance sheets. We
adjusted our portfolio toward
the end of 2017, increasing
exposure to property sectors
and geographic regions that
Steve Shigekawa
Anton Kwang, CFA
Brian C. Jones, CFA
Gillian Tiltman
stand to benefit from improving economic trends. In the U.S. we
favor Sun Belt markets, where the positive effects from tax cuts are
more likely to be felt. In Japan we believe developers are positioned
to benefit from an expected acceleration in inflation. In Europe we
prefer the Continent versus the U.K. and believe that the logistics
and German residential sectors continue to be supported by secular
trends. We believe advancements in technology—such as 5G cellular,
cloud computing, autonomous driving and artificial intelligence—likely
will lead to significant investments in network and IT infrastructure over
the next few years. In our view, data centers and infrastructure REITs
are well positioned to benefit from these tailwinds.
EQUITY RESEARCH
Driven by a culture of stock-picking accountability and teamwork, our 40-member Global Equity Research team subjects
companies to rigorous, disciplined analysis to generate stock recommendations with a long-term perspective. In addition to
supporting portfolio management teams across Neuberger Berman, we aggregate our analysts’ best ideas in a number of
Research-managed portfolios. These include the Research Opportunity strategy, a diversified sector-neutral portfolio consisting
of buy-rated names in research, weighted by analyst conviction. Building on the success of our existing Research-managed
products, we recently launched a number of new global thematic portfolios targeting disruptive trends such as autonomous
driving, next-generation networking and fintech. These portfolios leverage our analysts’ deep sector expertise to obtain more
concentrated exposure to the disruptive companies best positioned to benefit from these emerging technologies.
Timothy F. Creedon, CFA
28 | NEUBERGER BERMAN ANNUAL REPORT 2017
MICHAEL RECCE, Ph D
CHIEF DATA SCIENTIST
P E R S P E C T I V E S
O U R C O M M I T M E N T T O I N N O VAT I O N
In investment management, the need for innovation is constant. Not merely innovation
for its own sake, but rather the development of transformative concepts that build on an
organization’s innate strengths and have real, practical client applications. Inherent in
Neuberger Berman’s culture of partnership is a commitment to such innovation, a firm-wide
drive to uncover new solutions as markets and client needs evolve.
Today, “big data” is creating tremendous excitement across the business world and increas-
ingly in portfolio management. We share the enthusiasm. According to IBM, 90% of all
existing data has been created over the last couple years. As populations migrate online and
become inseparable from their cell phones, they leave a trail of data reflecting everything
from their browsing activity to their physical movements that when gathered and analyzed
can offer valuable insights on the health of businesses and the potential of their securities.
Most public attention thus far has focused on short-term opportunities in big data. In the
gap between quarterly earnings reports, frequent traders can capitalize on data-illuminated
inefficiencies that may not be known to the wider market. But for longer-term investors like
us, the opportunity is more about fundamentals: What can the data reveal that might not
be an explicit part of a company’s financial statements? Take, for example, a company that
reported top-line growth of 10%. Is that growth a result of attracting new customers, or
is it selling more goods to existing clientele? With the benefit of information from data,
investors can understand in more detail the socioeconomic and demographic factors con-
tributing to a company’s performance and can differentiate the performance in individual
products, geographies and customer cohorts. This information can make a major difference
as we seek to identify meaningful trends upon which to base investment decisions.
Public equity research is the most obvious application for big-data analysis, but in truth it is
relevant across asset classes. The same set of factors that could affect equity valuation may
also impact fixed income credit quality, while digital “footprints” can create a fuller picture
of operational realities in assessing private companies with limited financial disclosures.
Our big data team has already worked closely with many colleagues across Neuberger
Berman, both to provide insight and to introduce big data into their research and
investment processes. Over time, we expect to deepen those relationships. The task is an
important one. Big data is set to become a key battleground in the search for alpha. The
notion for us is not that it will ever replace human judgment, but that it can provide a
valuable set of tools for our active managers as they seek returns on behalf of clients.
2017 ANNUAL REPORT NEUBERGER BERMAN | 29
B U S I N E S S R E V I E W : F I X E D I N C O M E
BRAD C. TANK
CHIEF INVESTMENT OFFICER—FIXED INCOME
Entering a New Zone
Though economic growth gathered steam worldwide in 2017, inflation remained elusive and the yield on the 10-year U.S.
Treasury ended 2017 near where it began, belying widespread expectations that rates would shift higher during the year.
While the Fed’s measured approach to policy rate normalization pushed up the short end of the yield curve, longer-term rates
remained anchored and the curve flattened as a result. The factors driving this—persistently low inflation, the tethering effect
of low global rates and the disconnect between the Fed and the market around the terminal fed funds rate—should ease as
2018 progresses, suggesting that longer-term Treasury rates may be biased higher.
Even so, U.S. interest rates across the curve likely will remain well below
historical levels in 2018 and beyond, and negative-yielding sovereigns
remain prevalent in other developed markets. As a result, yield-oriented in-
vestors likely will continue to seek attractive sources of income. We’ve seen
evidence of this in the continued appeal of U.S. credit markets to non-U.S.
investors, for example, as well as in the broad allure of the emerging world
as cyclical improvement and ongoing reforms have produced an attractive
investment environment in many developing markets.
The Fixed Income platform was successful in delivering for clients in 2017,
and we continued to position the business for such success in the years
to come. We established a Shanghai-based team under the leadership of
Peter Ru to focus on opportunities in the increasingly accessible $11 trillion
China onshore bond market. Ashok Bhatia joined the firm as a portfolio
manager for our multi-sector fixed income strategies, which draw on the
full range of our fixed income capabilities. We maintained our focus on
building and integrating our insurance-dedicated resources, which will
allow us to continue to develop innovative solutions for this important client
base. And while the incorporation of ESG factors into our research and
investment processes already was widespread on the Fixed Income team,
we made significant progress furthering that effort as part of a firm-wide
initiative; notably, we launched the Municipal Impact strategy, which seeks
to deliver environmental and social outcomes alongside market-level returns
from investments in the U.S. municipal bond market.
We’ve entered a new zone for fixed income in 2018. Yields could go
lower, but the secular bull market appears to have already ended. Low
correlations among fixed income markets have buffered fixed income
investors during recent bouts of trouble, but this is unlikely to persist giv-
en narrow credit spreads and low rates. All in all, the chance of a broad,
cross-markets selloff appears higher today than it has been for years.
Given the ongoing transition to more normal levels of inflation and
interest rates and the reawakening of volatility that is likely to result—
both within markets and in correlations across asset classes—we
expect 2018 to be an interesting year. In our view, more complex
fixed income markets highlight the value of both long-term strategic
allocation and shorter-term tactical positioning, as well as having the
capabilities across sectors to execute on them.
2017 ANNUAL REPORT NEUBERGER BERMAN | 31
F I X E D I N C O M E
GLOBAL INVESTMENT GRADE FIXED INCOME
INTEREST RATES
AND INFLATION
Neuberger Berman’s integrated Global Fixed Income platform is comprised
of specialty investment teams that share a common framework to value
sectors. The Global Investment Grade Fixed Income team, a member of this
platform, manages more than $57 billion in assets for clients worldwide. The
team’s investment process is structured to navigate the broad global fixed
income universe, leveraging sector expertise from across the Global Fixed
Income platform to evaluate investment opportunities.
Andrew A. Johnson
David M. Brown, CFA
Government bond yields were relatively range-bound over the course of 2017, as expectations surrounding inflation
and global growth failed to wholly materialize. Within the U.S., the Treasury curve flattened as the long end fell slightly,
the 10-year remained largely unchanged and the short end was driven higher by the Fed’s three rate hikes. Globally,
interest rates remained subdued, weighed down by ongoing accommodative monetary policy in Europe and Japan.
Given this landscape, we maintained an underweight duration position—compared to the Bloomberg Barclays U.S.
Aggregate Bond Index—over the year and held short rate positions in core Europe and the U.K. More tactically, we
were long rates in Mexico, peripheral Europe and South Africa at different times over the year.
Thanos Bardas, PhD
CURRENCY
After a surge in reflation speculation in late 2016 following Trump’s election and into early 2017, U.S. inflation
expectations—as measured by breakevens—cooled for most of the year before modestly picking up in the fourth
quarter following consecutive strong inflation prints. Overall, we benefitted from our exposure to U.S. Treasury inflation
protected securities (TIPS), though we did reduce our exposure to the sector incrementally throughout the year. We
continue to like TIPS given the limited universe of securities that offer inflation protection; the securities also serve to
help offset our underweight in U.S. nominal duration.
Ugo Lancioni
CORPORATE
CREDIT
In the currency market, the U.S. dollar index experienced its first yearly loss since 2012. In contrast, the euro in 2017
posted its largest gain against the dollar in 14 years after beginning the year at a record low of 1.0341 EUR/USD, making
it the biggest gainer among G-10 economies. As the relationship between currency and interest rate differentials has
been weak, the current macro outlook appears to be driving currency strength. Europe is perceived to be earlier in
the business cycle than the U.S., while U.K. economic indicators have been steady. Elsewhere, the Bank of Japan has
maintained its highly accommodative policies even as the Fed and ECB have reduced their quantitative easing efforts.
Investment grade credit spreads continued to grind tighter over the year, closing out 2017 at levels last seen just
before the 2007 – 08 global financial crisis. Demand for corporate credit was bolstered by improving credit metrics,
strong issuance and expected fiscal policy. The strategy continued to benefit from strong security selection as well as
the team’s decision to remain overweight BBB rated credit, as the quality component of the sector outpaced Treasuries
over the year. A persistent underweight to the non-corporate segment of the sector also aided performance.
Our focus within securitized assets in 2017 favored floating-rate non-agency mortgage backed securities (non-agency
MBS) and credit risk transfer securities (CRTs). Both sectors were strong performers, offering good cash flow and
valuations amid a strengthening U.S. consumer and housing market, and contributed to performance. Looking ahead,
non-agency MBS maintains a very low correlation to risk-free rates and risky assets while still offering an attractive
projected loss-adjusted yield. CRTs, meanwhile, provide appealing yields, high-quality loans, a floating-rate coupon
and an expanding investor base.
32 | NEUBERGER BERMAN ANNUAL REPORT 2017
Julian H. Marks, CFA
STRUCTURED
PRODUCTS
Terrence J. Glomski
Thomas A. Sontag
GLOBAL NON-INVESTMENT GRADE CREDIT
SENIOR FLOATING RATE LOANS
Thomas P. O’Reilly, CFA
Vivek Bommi, CFA
Russ Covode
Stephen J. Casey, CFA
Joseph P. Lynch
Martin J. Rotheram
Pim M. van Schie
Daniel J. Doyle, CFA
Patrick H. Flynn, CFA
Driven by our 40-plus person dedicated global credit
research team, our Global Non-Investment Grade Credit
platform employs a disciplined process that seeks downside
risk mitigation with upside potential. We entered 2017
constructive about the fundamental landscape for high yield
but concerned that the market could experience increased
volatility given anticipated regulatory changes and looming
geopolitical risks. Believing that lower-quality portions of the
market were not compensating investors for these risks, we
increased our exposure to higher-quality issues, which hurt
performance as bonds rated CCC and below outperformed
in 2017 as meaningful market volatility failed to emerge.
Looking ahead to 2018, we believe non-investment grade
defaults in the U.S. will remain below historical averages as
improving economic growth buoys issuer fundamentals. The
credit quality of the U.S. high yield market remains stable,
with tax reform likely to have a modest positive impact
on issuer cash flow. Market performance in 2018 may be
susceptible to a variety of factors, including uncertainty
around trade policy, the shifting regulatory environment,
and potential changes to leveraged-lending guidelines and
their enforcement; meanwhile, technology-driven disruption
remains a key risk to certain industries. Credit quality in the
European high yield market remains robust, and default rates
are tracking near historical lows under 1%. With the prospect
of stable, coupon-driven returns in an increasingly volatile
global environment, we believe European high yield paper
should remain well bid in 2018.
Our Senior Floating Rate Loan team seeks attractive risk-adjusted returns
through the disciplined management of credit quality and industry analysis.
Our approach typically leads to a portfolio of larger and more liquid loans
from issuers with stronger fundamentals than the market as a whole. At
year-end 2017, more than 90% of the loans in our portfolio were from
issuances greater than $500 million and were rated B or higher. With the
magnitude of Libor increases lagging the spread compression in new issues
that has resulted from refinancings in a high-demand environment, senior
loan performance in 2017 came in at the low end of our expectations.
Distressed and lower-quality loans outperformed the BB and B parts of the
senior floating rate loan market during the year, as investors continued to
emphasize higher-yielding paper; as such, our continued focus on quality
across our U.S. and global loan portfolios proved to be a slight headwind
to performance in the prevailing environment. Continued moderate
economic growth in the U.S. should enable the Federal Reserve to persist
in its measured approach to policy normalization, including several hikes
of the federal funds target rate in 2018, which should be constructive for
senior floating rate loans. With the momentum of 2017’s near-record CLO
issuance expected to continue in 2018, the CLO market should be a steady
source of demand for loans. The loan market appears to be compensating
investors for default risk—we expect defaults to track below historical
averages in 2018—and the asset class continues to provide low-volatility,
low-risk access to the non-investment grade space.
2017 ANNUAL REPORT NEUBERGER BERMAN | 33
F I X E D I N C O M E
EMERGING MARKETS DEBT
Our multisite Emerging Markets Debt team offers clients a full range of EMD capabilities, with 30 dedicated
specialists focused on hard-currency, local-currency and corporate investment strategies, all of which incorporate
top-down analysis and bottom-up fundamental research to uncover the potential alpha in emerging markets
debt. Our Emerging Markets Debt strategies are approaching their five-year anniversaries in 2018, and the
team recently eclipsed $16 billion in assets under management. Investor sentiment toward emerging markets
debt remained upbeat in 2017, and the asset class saw steady inflows throughout the year thanks to the
emerging world’s improving macro backdrop, a weaker U.S. dollar, subdued trade-war rhetoric from the U.S. and
a supportive commodity price environment. Total returns for 2017 came in at 10.3% for hard-currency sovereigns, 15.2% for local-currency sovereigns
and 7.9% for hard-currency corporate bonds (as represented by the J.P. Morgan EMBI Global Diversified, GBI-EM Global Diversified and CEMBI
Diversified indexes, respectively). The synchronized global growth we saw in 2017 provides a strong foundation for continued positive momentum in
2018. While reflation and an upward bias on global bond yields can pose a risk to the performance of EMD assets, we believe that the consolidation
of the cyclical improvement in a large majority of emerging economies is likely to provide a buffer against external headwinds.
Rob J. Drijkoningen
Gorky R. Urquieta
SPECIAL SITUATIONS
MUNICIPAL FIXED INCOME
Michael J. Holmberg
Brendan McDermott, CPA
Ravi K. Soni
James L. Iselin
S. Blake Miller, CFA
James A. Lyman
The Special Situations team seeks opportunities in dislocated and distressed
markets. We provide liquidity to unnatural holders or forced sellers by
purchasing debt or assets from them that we believe are intrinsically
undervalued. We target hard assets like hotels, parking lots, power plants
and ships to mitigate downside risk, and we avoid asset-light holdings such
as those found in the service and technology sectors. In 2017 we completed
several restructurings and were able to monetize investments in the air
transportation, energy, oil & gas and real estate sectors at attractive levels
relative to our cost basis. We also selectively added new exposure in the
oil & gas, real estate and shipping sectors where we were able to source
undervalued assets from forced sellers, primarily funds and banks facing
liquidity and/or regulatory pressures. Our team actively engages in a holding’s
restructuring process when necessary to maximize value. For example, in
2017 we completed the sell-out of a condominium project—we converted
non-performing debt into equity, installed a new asset manager and invested
in deferred capital expenditures to upgrade units. In 2018, we expect a
continued uptick in default rates for smaller issuers and to source more
opportunities from forced sellers of real assets, specifically European banks.
Our 16-person Municipal Fixed Income team comprises 10 portfolio
managers and six research analysts who work collaboratively to
manage more than $10 billion in municipal assets. Bottom-up
fundamental analysis is the cornerstone of our investment process.
Our deeply experienced analysts perform extensive research across
our investable universe, backed by our proprietary state-of-the-art
research system. Security selection was additive to returns in 2017,
and our barbelled bias also contributed positively as the yield curve
flattened. The end of 2017 saw unprecedented levels of supply,
as tax-reform proposals had the potential to limit future issuance
of tax-exempt municipal bonds. We believe that supply will be
constrained in 2018, which could lead to relative outperformance
of tax-exempt bonds. Steady economic growth and limited supply
should be supportive of credit spreads. Central bank normalization
could create higher levels of volatility, and active credit decisions
should have a greater impact going forward. Our duration-neutral
style that emphasizes fundamental analysis and careful security
selection should be well suited for the market environment in 2018.
34 | NEUBERGER BERMAN ANNUAL REPORT 2017
MULTI-SECTOR FIXED INCOME
Brad Tank
Ashok K. Bhatia, CFA
Jon Jonsson
Drawing on the full range of Neuberger Berman’s fixed income
capabilities and an asset allocation process that emphasizes capital
preservation, the Multi-Sector Fixed Income team constructs portfolios
designed to meet client objectives around income, total return,
diversification and capital preservation. In 2017 our portfolios were
oriented toward capturing income and spread compression in U.S.
high yield, investment grade credit and emerging markets debt.
During the year we maintained allocations to U.S.-focused credit
sectors while increasing our exposure to emerging markets, reflecting
our view of positive growth and inflation differentials in these economies
compared to developed markets. We were generally positioned for
range-bound developed market interest rates in 2017. Looking to
2018, we have reduced the interest rate sensitivity of our portfolios
given our expectations that the combination of strong global growth
and global fiscal stimulus and reform will result in developed market
interest rates being re-rated in a higher range. We also modestly
reduced exposures to U.S. high yield and investment grade credit,
as the coupling of loosening fiscal policy with tightening monetary
policy in the U.S. should drive significantly higher volatility. With
inflation back on the radar, we anticipate maintaining significant
allocations to inflation-protected securities as well.
I N S I G H T S
FIXED INCOME
INVESTMENT OUTLOOK
The Fixed Income Investment Strategy
Committee, comprising senior portfolio
managers from across our Fixed Income
platform, meets monthly to share opinions
and insights and thus shape the asset
allocation of our multi-sector strategies.
The quarterly Fixed Income Investment Outlook
details the committee’s market outlook and
analyzes in depth the topics driving financial
markets today.
To subscribe to Fixed Income Investment
Outlook, please contact us at FIoutlook@
nb.com.
2017 ANNUAL REPORT NEUBERGER BERMAN | 35
F I X E D I N C O M E
INSURANCE FIXED INCOME
FIXED INCOME RESEARCH
The Insurance Fixed Income team represents
specialized market-facing resources that
are part of Neuberger Berman’s dedicated
Insurance Solutions Group. This framework
allows us to leverage the full spectrum of our
fixed income investment platform in address-
ing the unique circumstances of insurance
Jason Pratt
clients worldwide. Our philosophy is rooted in the recognition that
insurance companies differ in terms of economic objectives, capital
requirements, liquidity needs and approaches to supporting liabili-
ties and policy holders, all of which can vary significantly based on
such factors as line of business and regulatory jurisdiction. As such,
the first step in establishing effective partnerships with insurance
clients is to understand their unique needs and constraints. With
these defined, our broad multi-sector fixed income capabilities en-
able us to develop tailored solutions that better reflect the dynamic
nature of fixed income markets, distinguishing us from other firms
that may have a more limited product orientation. With more than
$30 billion in insurance assets under management, the 13-person
Insurance Solutions Group continues to build relationships around
the globe, bringing our ideas and resources into focus for insurance
companies of all sizes and types.
With experienced analysts
across investment grade,
non-investment grade and
emerging markets, our Fixed
Income Research teams
share the belief that market
mispricings provide oppor-
tunities to add value for
those with unique insights
and conviction if extracted
without exposing portfolios
to undue risk. We have the
ability to wed these notions
thanks to the fundamental
research—comprising
Stephen J. Flaherty, CFA
Christopher J. Kocinski, CFA
Jennifer R. Gorgoll, CFA
Nish V. Popat
economic analysis, sector and issuer spread relationships, cash flow
analysis, credit assessment and material ESG criteria—of analysts
within each sector, who interact daily with our portfolio managers
to ensure we make well-informed decisions for clients. In 2017 our
fixed income research resources—159 investment professionals
worldwide—conducted approximately 1,600 management meetings,
a reflection of our commitment to proactive, bottom-up research.
In addition, we continued to host research training programs for
personnel from key institutional clients so they could better understand
our process.
36 | NEUBERGER BERMAN ANNUAL REPORT 2017
HEATHER P. ZUCKERMAN
CHIEF OF STAFF
P E R S P E C T I V E S
O U R C O M M I T M E N T T O A C C O U N TA B I L I T Y
At Neuberger Berman we have been encouraged and excited by the increasing interest in our
application of environmental, social and governance principles to our investments and to our
firm’s culture. We have lived by the principles of ESG since well before a specific movement
emerged because doing so makes us better investors, employers and colleagues. We value those
companies, people and ideas that embody our culture of engagement, accountability and long-
term alignment. We learn by interacting candidly and collaboratively, by challenging each other
and by recognizing that being invested for the long term demands constant evolution. We also
focus on materiality in ESG, ensuring that we are driving toward salient goals rather than doing
things simply to “check the box.” A few specifics to bring these ideas to light:
Human Capital Management. We continually review our organization to identify individuals,
teams or processes that would benefit from increased diversity. Diversity takes many forms—
from traditional indicators like race, ethnicity or gender to the diversity of perspective, commu-
nication style or background. We seek to foster an environment in which diversity of all types
can flourish, changing the way we solicit employee feedback, make decisions, integrate new
hires and select counterparties and vendors as necessary to do so.
Governance. Though our Operating and Partnership committees likely would more than
satisfy the need for “governance“ at most private companies, we supplement these groups
with a formal board of directors that includes both Audit and Compensation committees.
Importantly, half our board members are independent and have substantive experience in
asset management, enabling them to truly engage and challenge management.
Business Planning. While long-term business planning naturally includes a range of client
and market assumptions, our flexible governance structure allows us to nimbly redirect
resources as necessary in response to evolving client needs, technological advances and
regulatory changes. And since most of our senior employees are also owners, they are
aligned in their focus on maximizing value for our clients and our firm.
Transparency and Feedback. Given their close engagement with our clients and financial
markets, our employees are uniquely positioned to advise senior management on key firm
initiatives. To encourage the free exchange of ideas we provide employees with a high level of
transparency while gathering feedback through channels that range from small employee dinners
at CEO George Walker’s home to anonymous employee surveys administered by third parties.
Our executive offices are situated next to the NB Exchange, our dining and gathering space, to
encourage informal interactions and to help us identify and address potential blind spots.
We are proud of the culture of alignment that we have built at Neuberger Berman. We will
continue to hold ourselves to the same high standards that have guided our company since
1939, and we welcome dialog with our clients, peers and counterparties on initiatives in the
ESG space and beyond.
2017 ANNUAL REPORT NEUBERGER BERMAN | 37
B U S I N E S S R E V I E W : A LT E R N AT I V E S
ANTHONY D. TUTRONE
GLOBAL HEAD OF ALTERNATIVES
A Continued Source of Compelling Opportunities
The alternatives market continued to be robust in 2017, as investors sought differentiated and uncorrelated returns to public
markets through private investment structures. We believe that 2018 will bring increased opportunity for alternatives, building
on the momentum from last year, when alternatives overall provided compelling investment opportunities and generated
attractive returns (as evidenced by the performance of the HFRI and the Cambridge Associates indexes) despite the volatility
in public markets and the highly charged political environment, rising interest rates and generally high valuations.
For 2018 we expect increased volatility as markets adjust to rising
interest rates and inflation along with continued geopolitical uncertainty.
We believe that corporate fundamentals will be the key driver of stock
prices once again, providing hedge fund managers the opportunity
to generate alpha on both the long and short side. Within the hedge
fund space, we also favor directional, uncorrelated hedged strategies
like CTAs and macro hedge funds that stand to benefit from potential
increases in commodity prices and interest rates. In addition, we
also believe that rising interest rates in the U.S. will make for a more
challenging environment for highly leveraged, lower-quality companies.
This, in turn, should create opportunities for hedge fund and private
equity distressed debt managers.
We remain bullish on private equity relative to other asset classes. We
think that private equity will benefit from robust financing markets,
reduced regulations and a more favorable corporate tax code in the
U.S. However, like most asset classes, valuations are high, so investors
should be cautious of private equity strategies that rely on buying
cheap or exiting at higher valuation multiples. Instead, we believe
investors would be better served focusing on private equity strategies
predicated on making significant strategic and operational improve-
ments that will accelerate earnings growth in companies.
We remain bullish on private credit, which, like other areas of private
equity, captures alternative sources of risk premia, in this case illiquidity
and complexity. In addition, private credit is somewhat insulated from
high valuations and can provide an attractive cash yield. Private credit
should also benefit from increased M&A activity driven by robust global
growth, strong corporate earnings and a less interventionist approach
to deals by the current U.S. administration.
Throughout 2017, Neuberger Berman Alternatives continued to be an
active investor and innovator in alternatives investments. The team
launched an uncorrelated hedge fund UCITS strategy in Europe and
also a strategy focused on real estate secondaries. Furthermore, we
increased activity in our existing businesses, raising capital across
diversified private equity, secondaries, private debt, distressed credit
and private equity minority stakes businesses.
2017 ANNUAL REPORT NEUBERGER BERMAN | 39
A LT E R N AT I V E S
PRIVATE INVESTMENT PORTFOLIOS
Jonathan D. Shofet
Peter J. von Lehe
Patricia Miller Zollar
Paul D.S. Daggett
Elizabeth S. Traxler
Our Private Investment Portfolios team builds diversified private equity portfolios for institutional clients around the world, both on a commin-
gled fund and separate account basis. Specifically, we invest in primary and secondary fund commitments and direct co-investments in private
equity-backed companies across asset classes, industries and geographies. The team was extremely active over the course of 2017 and reviewed
approximately 200 opportunities, ultimately committing $2.8 billion in new investments during the year. Liquidity has also been robust, and we
received over $1.1 billion of gross proceeds from underlying portfolio company realizations during 2017. Looking ahead, we are optimistic, albeit
cautious, in the face of relatively high asset prices and the prospect of rising interest rates, recent market volatility and complex geopolitical issues.
Our focus remains on investing in and alongside experienced private equity managers that have strong track records, sound investment judgment,
appropriate price discipline and a demonstrated ability to drive operational value in the companies they own.
SECONDARY INVESTMENTS
Brian G. Talbot
Tristram C. Perkins
Ethan A. Falkove
Benjamin B. Perl
Scott Koenig
Our Secondary investment team is focused on acquiring high-quality private equity assets from various types of sellers in a range of situations, including
traditional limited partnership interests, opportunistic direct co-investments from investors seeking early liquidity, portfolios of directs or “synthetic
secondaries,” and structured secondary solutions, royalties, hedge fund side pockets and credit-related opportunities. The team was particularly active in
2017, having reviewed approximately 270 opportunities. Looking to 2018 we are optimistic that attractive opportunities will again present themselves, as
the growth drivers of recent years—the expanding universe of sellers, changing regulations, more active portfolio management and the growth in private
equity generally—are, in our opinion, sustainable long-term trends. Finally, we note that a secondary strategy can benefit from broader market volatility in
terms of increased deal flow and more favorable pricing. In addition, we have seen general partners begin to embrace the secondary market as a way to
solve complex issues and help generate liquidity for their existing limited partners, a trend that we expect to continue. In 2017 the team added two senior
real estate professionals, Scott Koenig and Ted Rykowski, to expand our capabilities into the real estate secondary market. We believe that this segment of
the secondary market remains relatively under-addressed and that by leveraging our platform’s resources, reputation and access to deal flow, we are well
positioned to take advantage of the opportunity.
40 | NEUBERGER BERMAN ANNUAL REPORT 2017
CO-INVESTMENTS
MARQUEE BRANDS
David S. Stonberg
David H. Morse
Michael S. Kramer
Jacquelyn A. Wang
Joana Rocha Scaff
Samuel N. Porat
Zachary P. Sigel
Our Co-Investment team is focused on selecting the best investment opportunities with
leading private equity firms in their core areas of expertise. In 2017 we reviewed a record 220
investment opportunities, driven by the strength of our private equity platform and relationships.
Amid the backdrop of elevated valuations, the team continues to be highly selective and to
favor opportunities where there is a clear value-creation plan focused on initiatives including
operational efficiencies, cost savings and/or accretive add-on acquisition strategies. Our ability
to co-underwrite an investment or provide capital for strategic purposes to existing portfolio
companies of private equity firms after the time of their initial investment (“mid-life” investments)
has provided a differentiated investment approach for our partner private equity firms. These
mid-life investments can be used for a variety of purposes, including shareholder monetizations,
recapitalizations and assisting in the funding of large acquisitions. For 2018 we expect to maintain
our strategy.
RENAISSANCE PARTNERS
Marco Cerrina Feroni
Fabio C. Cane
Stefano Bontempelli
Marco De Simoni
Luca Deantoni
Michele Quaranta
NB Renaissance Partners is a private
equity fund focused on generating
attractive returns by investing in
growth-oriented Italian mid-market
companies. After a strong 2017,
our outlook for 2018 continues
to be optimistic. Italy is currently
enjoying sound economic prospects
and a positive investment climate,
coupled with an abundant supply of
family-owned companies that are
facing succession issues and need of
capital to grow in the international
markets. Although private equity
activity in Italy has grown significantly,
the market is still highly underpenetrated. The limited competition, particularly in the mid-cap
segment, drives moderate valuations, further increasing the attractiveness of the opportunity set
for the Renaissance team.
Marquee Brands acquires, licenses and develops
high-quality consumer brands with the goal
of expanding their reach across distribution
channels, geographies and product categories.
The past year was a transformational period
for Marquee Brands on several fronts. First, we
continued to capitalize on retail dislocation,
completing the acquisition of a portfolio of
high-quality women’s brands out of bankruptcy
(BCBGMaxAzria, BCBGeneration and Herve
Leger). Second, our brand portfolio royalty
revenues grew approximately 15% organically,
as marketing and licensing initiatives from prior
years continued to deliver growth. Third, Mar-
quee continued to expand our platform, opening
up an office in Los Angeles and building out our
e-commerce and digital capabilities. As we look
toward 2018 and beyond, we hope to build on
our momentum from last year and we expect to
complete more acquisitions as traditional brick-
and-mortar retail challenges create opportunities
for intellectual property buyers.
2017 ANNUAL REPORT NEUBERGER BERMAN | 41
A LT E R N AT I V E S
PRIVATE CREDIT
DYAL CAPITAL
Susan B. Kasser, CFA
David J. Lyon
Matthew Bird
Michael D. Rees
Sean J. Ward
Our Private Credit team invests in the secured and unsecured
debt of private equity-owned companies, benefitting from
Neuberger Berman’s expansive network of sponsor relationships.
We believe that our relationships will continue to provide
significant sourcing advantages, enabling us to identify attractive
investment opportunities in a wide range of market conditions.
In 2017 credit markets exhibited little of the marked volatility
of early 2016, and spreads continued to tighten in the face of a
benign macroeconomic backdrop, solid corporate fundamentals
and U.S. regulatory/tax reform. We remain highly selective in a
market characterized by elevated leverage levels and borrower-
friendly documentation. In 2017 we invested in fewer than 7.5%
of the transactions we reviewed. We continue to believe that,
despite new entrants and incremental capital earmarked for private
credit, our markets are not immune to fits of risk aversion and
dislocation. As such, our long-term perspective coupled with our
focus on rigorous fundamental analysis and capital preservation
will enable us to take advantage of future inefficiencies.
Dyal Capital Partners is focused on acquiring minority equity stakes
in established alternative asset managers. Since 2011 the Dyal
team has invested in 26 leading hedge fund and private equity
firms. In 2017 the Dyal team completed five transactions, acquiring
minority stakes in four private equity firms and one hedge fund
firm. The year generally ended well for alternative asset managers,
with record fundraising in private equity and hedge funds’ best
returns in four years. We anticipate that increased asset price
volatility will provide significant opportunities for managers whose
fund structures allow them to take the long view and for hedge
funds to invest both long and short. For 2018 we expect our
segment of the alternative asset management space to remain
attractive, as managers’ demand for permanent capital to facilitate
platform development, generational transfer, new product launches
and other strategic initiatives continues to grow.
42 | NEUBERGER BERMAN ANNUAL REPORT 2017
HEDGE FUND SOLUTIONS GROUP
David G. Kupperman, PhD
Jeff A. Majit, CFA
Frederick Ingham
Driven by focused and disciplined research and portfolio management,
the Hedge Fund Solutions team seeks investment opportunities with
an emphasis on absolute returns, low volatility and minimal sensitivity
to broader market movements. 2017 was a productive year for the
majority of fundamentally driven hedge fund strategies. Lower intra-
stock and intra-bond correlations led to a particularly fertile environ-
ment for bottom-up long/short equity and credit investing. In contrast,
relative value and global macro strategies, which rely at least partially
on market volatility to generate returns, had a more challenging 2017.
S&P 500 volatility dropped to near 50-year lows and Treasury volatility
to near 30-year lows, limiting the ability of hedge funds in these areas
to capture gains from outright or relative asset price movement. That
said, the opportunity set for managers in these strategies appears to
have improved in early 2018. We anticipate the end of coordinated
easy monetary policy combined with significant fiscal stimulus in the
U.S. will lead to upward pressure on interest rates, which in turn should
result in higher levels of realized volatility across asset classes. After
nearly a decade of QE-driven volatility suppression, an environment
characterized by higher levels of intra- and inter-asset class dispersion
augur well for managers pursuing global macro and relative-value trad-
ing strategies. Further, as rates continue to move higher, shorting both
equity and credit should become easier, as companies whose problems
have been masked by the ability to borrow cheaply become more
exposed. As we transition to a market no longer implicitly supported
by central banks, we believe investors can benefit by complementing
their long equity and fixed income portfolios with exposure to hedge
funds well-positioned for what could very well be the early stages of a
paradigm shift in markets.
I N S I G H T S
HEDGE FUND
PERSPECTIVES
The hedge fund marketplace comprises
a diverse array of strategies in which both
the dispersion of performance and degree
of opportunity are sizable. The NB Alternative
Investment Management team publishes
its annual Hedge Fund Perspectives to
explore this dynamic landscape, analyzing
the trends and themes that may hold
potential moving forward.
To subscribe to Hedge Fund Perspectives,
please contact us at HFperspectives@nb.com.
2017 ANNUAL REPORT NEUBERGER BERMAN | 43
A LT E R N AT I V E S
LONG SHORT
PRINCIPAL STRATEGIES GROUP
Joseph A. Rotter III
Judd M. Arnold
Sean M. Badcock
Gabriel J. Cahill, CFA
Erik F. Ostrowski, CFA
The Principal Strategies Group employs an equity
market-neutral, style factor-minimized approach to
event-driven investing. The team seeks to generate
positive absolute returns with minimal correlation
to equity market indexes. The strategy incorporates
two distinct sub-strategies: risk arbitrage and
market-neutral catalyst. In 2018 we expect regulatory
and fiscal reform to serve as catalysts for acceleration
of both industry consolidation and corporate restructuring,
yielding a robust set of potential and announced events
in which to invest. Although we expect tighter monetary
policy and increased volatility to present headwinds
to global equity returns in 2018, we believe our hedging
framework can help us both preserve capital and isolate
the value created by an announced acquisition, asset
sale or other corporate event.
Charles C. Kantor
With the ability to invest long and short as well as in
fixed income, our Long Short strategy seeks capital
appreciation with a secondary objective of principal
preservation. During 2017 we modestly increased our
net long bias, as the regime change from monetary
to fiscal policy in the U.S. alongside strong economic
data created higher stock dispersion and opportu-
nities for differentiation based on company-specific
fundamentals. At the end of 2017 we remained
positioned for a prolonged recovery and upswing in
the business cycle, as in our view benefits of the Tax
Cuts and Jobs Act have the potential to create further
tailwinds to the current recovery. Nevertheless, we
are very mindful of the complex world in which we
live and invest. The risks of the long-term inflationary effects of continued
government intervention coupled with myriad ongoing geopolitical issues
around the world remain top of mind. Thus, policy details will matter a
great deal more in 2018 and beyond.
Marc A. Regenbaum
GLOBAL LONG SHORT CREDIT
Norman Milner
D. Richard Dowdle
Our Global Long Short Credit
strategy seeks to serve as a
complement to “long-only”
traditional fixed income man-
agement. Fundamental analysis
is the bedrock of our portfolio
construction. The portfolio is
fairly concentrated and aims to
avoid excessive amounts of in-
terest rate and directional credit
market risk. The portfolio seeks
to allow investors to participate
in the yield and return of the
credit markets while mitigating
some of the downside risk. The
credit markets in 2017 performed well, as credit spreads rallied over the
year and the search for yield continued. We were able to participate in
much of this performance without taking on the full risk of the credit and
interest rate markets. We expect 2018 to be a more volatile year and hope
to take advantage of this, on both the long side as well as the short side.
Darren L. Carter
Itai Baron
44 | NEUBERGER BERMAN ANNUAL REPORT 2017
ALAN H. DORSEY
CHIEF RISK OFFICER
P E R S P E C T I V E S
O U R C O M M I T M E N T T O R I S K M A N A G E M E N T
Risk management is central to Neuberger Berman’s culture. As an employee-owned manager,
Neuberger Berman is devoted to identifying and managing risk—risk to our clients, risk to
our portfolios, risk to our reputation.
We believe that fostering an environment of strong internal controls is vital. To this end, we
have established a rigorous risk management framework that features dedicated investment
and operational risk teams who work to protect client assets and our enterprise as a whole.
Internal risk guidelines are just a starting point. Our risk professionals—many of whom
have backgrounds in investment research and portfolio management—act as an indepen-
dent oversight for each portfolio management team’s investment exposures and process,
supporting risk reviews with our chief investment officers and portfolio managers. Risk
personnel also act in collaboration with other control units of the firm, such as compliance
and internal audit. A focus on collaboration across Neuberger Berman fosters an environ-
ment of open discussion and problem-solving, and it promotes an alignment of our invest-
ment platform with the best interests of clients. With a direct reporting line to Neuberger
Berman’s Chief Executive Officer, our risk management structure is enhanced by an ability
to escalate issues as necessary to firm leadership as well as to our commingled fund boards
and board of directors.
Throughout 2017 we improved our capabilities on both the investment risk and operational
risk fronts. For example, we expanded our investment risk oversight framework to include
support for new investment strategies and the geographic expansion of our fund platform.
We also enhanced our operational risk controls related to the business impact analysis of
potential outages of critical trading systems. We expect to identify additional investment
and operational risk areas to support in 2018 as we continuously evolve in order to manage
risks to our clients and franchise.
2017 ANNUAL REPORT NEUBERGER BERMAN | 45
B U S I N E S S R E V I E W : Q U A N T I TAT I V E A N D M U LT I - A S S E T C L A S S
ERIK L. KNUTZEN, CFA, CAIA
CHIEF INVESTMENT OFFICER—
MULTI-ASSET CLASS INVESTMENTS
J. DOUGLAS KRAMER
CO-HEAD OF QUANTITATIVE AND
MULTI-ASSET CLASS INVESTMENTS
A Balancing Act Focused on Client Outcomes
Global economic conditions were very encouraging in 2017, with synchronized growth supporting risk assets worldwide. Geopolitical
risks largely were shrugged off by investors, and equity markets displayed a remarkable run against a backdrop of unusually low
volatility. While we do not feel this momentum was disconnected from the underlying fundamentals, the Quantitative and Multi-Asset
Class (QMAC) team spent much of the year focused on the investment outcomes sought by our clients, working from there to deliver
the right solutions. Our dialogues have increasingly centered on ways investors could continue to source attractive return profiles
while simultaneously preparing for a shifting investment environment likely marked by increased equity volatility, rising interest rates
and higher inflation. To this end, we focused on diversification—not only of exposures (style and factor exposures in particular) but
also of those sources of return expected to help mitigate weaker performance from traditional asset classes—with an emphasis on
transparency and costs. And of course no discussion was complete without an assessment of the complex risks investors face today.
The QMAC team seeks to address investors’ needs by delivering solutions
tailored to specific investment objectives, offering access to the best ideas
of both the QMAC investment teams and Neuberger Berman as a whole,
including strategies that capture compensated factor exposures efficiently
and transparently within a robust risk management framework. In 2017
we added to our roster of multi-asset class (MAC) mandates, including a
new strategic partner; on-boarded several new customized asset allocation
mandates; and launched commingled vehicles offering access to the MAC
portfolio management team’s investment views. Our Option business
continued to gain significant traction with a wide range of clients seeking
to diversify or lower the risks of their equity portfolios. And we deepened
our commitment to quantitative investing by welcoming Breton Hill
Capital—a boutique Canadian asset manager focused on risk premia and
factor investing—into the Neuberger Berman family. This Toronto-based
team of nearly 20 professionals—including the three co-founders who
have worked together for more than two decades—brings to the firm an
impressive investment platform and significant capital markets experience.
Today we have more than $12 billion in assets under management—with
46 employees in New York, Toronto, London, Chicago and Taiwan—and in
2018 we seek to deliver our capabilities to an ever-growing investor base.
We have doubled the number of PhDs on our team, we are working more
closely with the firm’s Global Equity Research and Data Science teams, and
we continue to invest in technology and the operating platform to support
the business. We recently launched a Taiwan equity strategy, and this year
we plan to further expand our systematic equity strategies to China; Ping
Zhou, who currently manages a systematic emerging market equities strat-
egy out of New York, will be relocating to Shanghai to work more closely
with our clients in the region, to extend these capabilities and to develop a
China A shares strategy. We expect to continue to grow our capabilities to
better navigate complex markets as our clients’ needs evolve.
2017 ANNUAL REPORT NEUBERGER BERMAN | 47
Q U A N T I TAT I V E A N D M U LT I - A S S E T C L A S S
BRETON HILL
OPTIONS
Ray Carroll, PhD, CFA
Simon Griffiths, CFA
Frank Maeba, CFA
Derek R. Devens, CFA
Rory Ewing
Eric Zhou
Our Option Group builds portfolios that seek long-term profits by
consistently collecting option premiums in a liquid, risk-managed
framework. 2017 was remarkable in many ways, with the S&P 500
advancing every month of the calendar year for the first time ever
and volatility at its lowest levels in decades. Despite this low-volatility
environment, investors in our Option team’s put-writing strategies
generally were able to capture a reasonable share of the gains posted
by their underlying equity indexes while also accessing a source
of cash flow and income. Flows into Option strategies accelerated
over the course of 2017 for a variety of reasons. Some investors
deployed options strategies to efficiently diversify their existing equity
risk given valuation levels, others used them as a cost-effective
liquid alternatives strategy, and still others sought to reduce equity
exposure without holding duration-risk-sensitive bonds or cash. To
meet these varying needs, we launched several new products offering
put-writing strategies, including the addition of a global approach to
our existing U.S.-equity focused lineup and a hedged option premium
retail offering. As we look ahead to 2018, we believe these same
objectives will continue to motivate investor decision-making, and
interest will be fueled further by investors seeking to opportunistically
take advantage of the higher-volatility conditions we’ve seen in early
2018. Against these evolving trends, our philosophy and approach
remain consistent—we continue to manage our strategies with a
focus on long-term success, including a strong preference for
compounding option premium cash flows and short-term bond
income over long periods of time.
Gideon Schapiro, CFA
Ram Ramaswamy
Utilizing rigorous quantitative research and a proprietary technology
infrastructure, Breton Hill’s capabilities range across the risk and
return spectrum, spanning equities, currencies, commodities, rates
and volatility. The team’s investment strategies focus on alternative
risk premia, systematic equities, tax-managed strategies and a suite
of Canadian-based mutual funds and ETFs through our partnership
with Purpose Investments, a leading funds provider in Canada.
The Breton Hill team’s edge is rooted in its diversified, thoroughly
researched and finely risk-managed multi-asset and single-asset
risk premia portfolios with disciplined drawdown management. In
2017 we focused on integrating the team into Neuberger Berman,
deploying our factor-based investment capabilities into the portfolios
of several strategic partners, with exposures tailored according to
these clients’ overall investment objectives. In 2018 we plan to bring
our capabilities to a wider audience through the launch of several
additional commingled vehicles, as well as through discussions with
clients about our ability to customize strategies with bespoke factor
exposures. The team is also working closely with Neuberger Berman’s
Global Equity Research and Data Science teams to identify system-
atic drivers of returns in both the fundamental analysis of individual
companies and in “big data” sets—a quantamental approach to
enhancing our systematic capabilities. With the added scrutiny on
transparency and fees in both traditional and alternative asset classes,
we believe our team is uniquely positioned to deliver compelling
investment strategies designed to meet clients’ needs across large
portions of their portfolios.
48 | NEUBERGER BERMAN ANNUAL REPORT 2017
MULTI-ASSET CLASS
Erik L. Knutzen, CFA, CAIA
Lori L. Holland
Tokufumi Kato, PhD
Ajay Singh Jain, CFA, FCCA Hakan Kaya, PhD
Our Multi-Asset Class team offers a range of portfolio solutions,
including customized investment strategies tailored to a client’s
unique needs, as well as commingled vehicles that provide broader
access to many of these same strategies. The MAC team will work
to design the most efficiently constructed portfolio in pursuit of a
client’s objective, whether it is to generate absolute returns, produce
a steady income stream or provide a risk-parity portfolio. The 2017
investment environment was characterized by moderate growth,
low inflation and still-accommodative monetary policy, but within a
more fragile overall economic regime facing increasing challenges.
Against this backdrop, the MAC team brought on several new clients
with specific needs, including multiple mandates focused on lower
volatility or lower beta to equity markets. We also added a new
strategic partner to our small group of clients in this space, as well
as new OCIO clients. Finally, we launched a fund specifically focused
on diversified growth exposures, albeit with moderate volatility and
lower sensitivity relative to equity markets. Looking ahead in 2018,
while we believe there is still runway for risk assets to appreciate
further, we also believe that adopting a more defensive stance is
warranted should risks manifest themselves sooner rather than later
this year. In this environment, absolute return strategies could benefit
from rising volatility and diverging markets, and options or alternative
risk premia strategies may help improve portfolio risk-adjusted return
potential. Increased exposure to inflation-sensitive assets—such as
commodities, where we are seeing significant new flows—is also an
attractive strategy amid late-stage growth and rising price pressures.
I N S I G H T S
ASSET ALLOCATION
COMMITTEE OUTLOOK
Composed of senior investment profession-
als across platforms, our Asset Allocation
Committee assembles each quarter to
establish its 12-month views for an array
of asset classes, refined through vigorous
debate and discussion. The quarterly Asset
Allocation Committee Outlook captures
these views and the market, macroeconomic
and geopolitical context driving them.
To subscribe to Asset Allocation Committee
Outlook, please contact us at AACoutlook@
nb.com.
2017 ANNUAL REPORT NEUBERGER BERMAN | 49
P E R S P E C T I V E S
KENNETH G. RENDE
HEAD OF WEALTH MANAGEMENT;
PRESIDENT AND CEO, NEUBERGER
BERMAN TRUST COMPANY
O U R C O M M I T M E N T T O C L I E N T E N G A G E M E N T
Periods of steady growth in equity markets can breed complacency among investors—
and neglect over time can warp even the most thoughtfully crafted asset allocation plan.
Therein lies the risk after a year like 2017 in which stocks trended consistently higher before
an early-2018 bout of volatility shook investors from their slumber. Suddenly unsettled
financial markets can serve as a test for investors—of their asset allocation, of their invest-
ment discipline, of their strategic plan. Such conditions also test the effectiveness of their
trusted advisors.
As providers of wealth management services throughout our more than 75-year history,
Neuberger Berman’s ability to deliver for clients through a variety of market conditions is
predicated not only on the expertise and experience of our portfolio managers, but also on
the depth, breadth and quality of our engagement with clients.
Our investment teams and wealth advisors work closely with each client to design customized
portfolios in a tax-sensitive framework that reflects income needs, growth targets and risk
tolerance, accessing a full platform of tailored, multifaceted investment solutions managed
by Neuberger Berman portfolio managers and complemented by the Neuberger Berman Trust
Company, Investment Strategy Group (ISG) and wealth planning analysis team.
The Neuberger Berman Trust Company delivers comprehensive and personalized fiduciary and
investment services for individuals and institutions, taking a holistic approach that integrates
the unique needs of each client with appropriate investment solutions. The Trust Company
offers services nationwide and also is able to provide access to the favorable trust laws of the
state of Delaware. The Trust Company can help review, construct or execute a gift or estate
plan, as well as provide discretionary asset management services and solutions.
ISG provides a wealth of global investment insights, research and analysis, and helps design
customized asset allocations and portfolio manager proposals across all asset classes to create
tailored investment solutions for clients. ISG leverages the quarterly tactical views of the firm’s
Asset Allocation Committee as well as its own strategic analysis and manager research. The
group works closely with our wealth advisors, portfolio managers and clients to gain a deep
understanding of each client’s situation and goals in designing investment solutions.
As a complement to ISG and the Trust Company, our wealth planning analysis team considers
the entirety of a client’s financial resources to assess progress toward personal goals and
to explore ways that can help improve upon existing approaches. This task extends across
disciplines, including cash flow management and taxation planning, and explores many
challenges faced by individuals, including retirement, long-term care needs, education funding
for family members and more.
50 | NEUBERGER BERMAN ANNUAL REPORT 2017
B U S I N E S S R E V I E W : P R I VAT E C L I E N T
JOSEPH V. AMATO
PRESIDENT AND CHIEF INVESTMENT OFFICER—EQUITIES
Partnering Across Generations
Our private client investment managers—an integral component of Neuberger Berman since our founding in 1939—deliver
unique, tailored solutions to individuals, families and their related organizations. These managers emphasize customization,
strong risk management and a commitment to service that has fostered deep, longstanding relationships spanning generations.
The qualities that have long defined our firm—tailored solutions, personalized service and a passion for investing—
continue to resonate with our clients today.
Clients can count on a true partnership with Neuberger Berman, one
that leverages the full range of the firm’s resources in pursuit of
attractive, risk-adjusted, tax-efficient returns over the long term
complemented by unparalleled service. Our portfolio managers are
seasoned investors, supported by teams that have worked together
across market cycles and through a variety of investment environments.
We expect this experience will be vital in 2018 and the years to follow
as central banks continue to back away from post-crisis monetary
accommodation and fundamental market drivers return to the fore,
a transition likely to be marked by increased volatility—and increased
opportunity for nimble, active investors.
Our private client business represents an important part of our heritage
and affirms our commitment to provide solutions to our clients’ needs.
To reflect the dynamic investment environment, we continue to expand
our platform, our services and the ways in which we engage with
our clients. In recent years the firm has added a range of investment
solutions and augmented our internal research capabilities as investors
continued to look beyond traditional equity and fixed income investments
to incorporate a broader range of risk and return opportunities. We
will continue to add resources as appropriate to meet the evolving
needs of our clients.
2017 ANNUAL REPORT NEUBERGER BERMAN | 51
P R I VAT E C L I E N T
THE PADUANO GROUP
THE LARGE CAP DISCIPLINED GROWTH GROUP
The Paduano Group believes
major long-term demographic,
societal, technological and
political developments around
the world create a robust array
of investment opportunities. The
team follows a disciplined and
consistent research process in an
effort to translate these secular
global themes into high-con-
viction, worldwide investments.
2017 was a productive year
for our strategy, with healthy
contributions from a number of
our themes, notably Evolving
Daniel P. Paduano, CFA
Sherrell J. Aston
Jason H. Vintiadis
Maximiliano Rohm
Global Consumer, Personalization of Media and Health & Wellbeing. We
were encouraged by the continued progress in the equity markets toward
a more normal correlation between stock price performance and business
fundamentals and an environment in which companies with unique
revenue profiles and exceptional operating leverage are recognized for
their individual worth and not just as an element of an ETF or index fund.
In 2018 the geopolitical and economic backdrop presents us with a list
of both risks and opportunities. It is this exact environment in which
our themes can serve us particularly well, as we focus our due diligence
efforts on businesses with predictable secular growth around which we
can develop a great deal of confidence.
THE KSE VALUE GROUP
John J. Barker
The Large Cap Disciplined Growth strategy and
philosophy have remained consistent for over
two decades: The team is focused on identifying
and owning companies experiencing a multiyear
acceleration in fundamental operating performance.
We layer in additional factors when making
investment decisions, including embedded
optionality in the business, long-term free cash
flow support, input from the Neuberger
Berman Global Equity Research department
and investor skepticism. We are often asked
about our outlook for growth stocks, given
strong outperformance versus value in 2017,
and we continue to be optimistic that growth
can continue its strong run. The bulk of the out-
performance of growth in 2017 was driven by
earnings, highlighted by the fact that the relative
earnings multiple for growth versus value stocks
remains largely unchanged and consistent with
the historical average. Further, where we did
see valuation expansion, it is important to note
that several key growth stocks see accelerating returns to scale; their
economic moat expands faster as they get bigger. We will continue to
apply our investment discipline in 2018, and we will look to capital-
ize on individual opportunities regardless of the market or economic
backdrop.
Jason Tauber, CFA
Richard N. Bradt
Michael N. Emmerman
Michelle B. Stein
Brooke Johnson
Richard Wesolowski
The KSE Value Group is a classic value investor, using a time-tested process rooted in rigorous research to identify undervalued stocks across
the capitalization spectrum. We look for companies that are poised to benefit from a clearly defined catalyst, which may be internal (such as
management changes or shifts in the company strategy) or external (such as regulatory, political or macroeconomic trends). Once we initiate
a position, our investment horizon is generally two to four years. We believe that company-specific catalysts will be key drivers of performance
in 2018, as they have been in previous years.
52 | NEUBERGER BERMAN ANNUAL REPORT 2017
THE GREENE GROUP
THE KAMEN GROUP
Michael C. Greene
Benjamin H. Nahum
Stanley G. Lee
Michael W. Kamen, CFA
Lee J. Tawil, CFA
Stuart J. Pollak
The Greene Group manages small-cap, mid-cap and all-cap
strategies using a private equity-style, research-driven approach
to identify out-of-favor companies trading at a significant dis-
count to their intrinsic value with an identifiable catalyst to help
narrow the price gap over time. The team looks for disconnects
between reality and market perception—something that occurs
regularly in particular types of companies, such as those with
complex corporate structures. In 2018 a number of our most
attractively valued technology positions participate in growing
sectors, from voice recognition to internet infrastructure and
cybersecurity. This undervalued growth play is also evident in
other areas, such as the health care and consumer sectors,
where we have investments in a private-label food supplier
and an organic foods manufacturer. In the medical space we
continue to see opportunities in companies that benefit from an
aging population and expanded health care coverage. Research
and development spending in life science and medical research
also stand to benefit several portfolio companies. It is possible
to envision 2018 as a year marked by continued momentum
along with episodic corrections that can quickly and significantly
lower equity values. Against the backdrop of improving economic
conditions and buoyant equity prices, we are doing our best to
evolve as value investors.
The Kamen Group seeks to deliver solid long-term investment
performance through a disciplined investment process focused
equally on the quality of companies and the price that is
paid for them. The team favors businesses characterized by
sustainable competitive advantages, strong management,
high returns on capital and superior balance sheets. In 2017
our portfolios benefitted from a large position in technology,
which we increased our exposure to in late 2016 as it became
undervalued relative to its prospective growth. Our modest
cash position detracted, but our portfolios participated in the
stock market’s strong advance. At the beginning of 2018, our
technology exposure remains significant, as does our exposure
to heath care, particularly medical devices. We are underex-
posed to utilities and REITs, given our expectation of rising
interest rates. With the benefits of the new tax bill and robust
economic conditions (offset somewhat by rising rates), we are
still bullish on the equity markets for 2018. However, elevated
equity market valuations should result in more moderate
return outlooks for both equities and fixed income going
forward. We have become more selective in deploying cash to
new opportunities, and we are focused on companies where
valuation remains reasonable and we have high conviction in
the investment premise.
2017 ANNUAL REPORT NEUBERGER BERMAN | 53
P R I VAT E C L I E N T
THE STRAUS GROUP
TEAM KAMINSKY
Marvin C. Schwartz
Richard J. Glasebrook, CFA
David I. Weiner
Henry Ramallo
Gerald P. Kaminsky
Michael J. Kaminsky
Richard M. Werman
Stephanie J. Stiefel, CPA Charlie W. Schwartz
Taylor L. Glasebrook
Joshua A. Bronstein, CFA
Mindy Schwartzapfel
David G. Mizrachi
James J. Gartland
The Straus Group is a team of active portfolio managers dedicated to
building client wealth through investments in undervalued mid- and
large-cap U.S. equities that we believe are capable of compounding
capital over time. We focus on generating long-term capital gains in a
tax-efficient manner. In 2017 the S&P 500 Index rose substantially,
driven by strong corporate earnings and an improvement in business
optimism as a result of tax reform. We believe that we are in the midst
of a synchronous expansion in all OECD economies—a situation
anticipated by few economists 12 months ago. Despite these positives,
we see signs of investor complacency, and speculative activity is on
the rise. One of the important tenets of successful long-term investing
is being mindful of the cyclical nature of markets. As we look forward,
we remain steadfast in our commitment to seeking investments in
companies that sell at discounted prices relative to what we believe is
their intrinsic value.
Team Kaminsky provides customized portfolios for individuals,
families and institutions, utilizing both growth and income
styles of investing tailored to each client’s specific profile.
As managers of “core” equity, balanced and fixed income
portfolios, the team’s mission is to add value in all asset
categories while providing highly personalized service, and
to do so in an efficient manner. We were quite pleased with
our 2017 results given our lower risk profile. Many of the
strongest contributors to performance were investments we
made in previous years, which we believe is a testament to
the team’s discipline and long-term focus. We will continue to
look for long-term secular trends that we expect will provide
a tailwind as we attempt to generate attractive compounded
investment returns for our clients over time. We believe we
are positioned appropriately given our outlook for 2018, and
we maintain the flexibility to adapt in what could be a more
volatile marketplace.
54 | NEUBERGER BERMAN ANNUAL REPORT 2017
THE FRAENKEL GROUP
THE KANTOR GROUP
Francis L. Fraenkel
Robert H. Pearlman
David M. Ross
Charles C. Kantor
Marc A. Regenbaum
Raman Gambhir
Kenneth Y. Amano, CFA
Ann Marie Foss, CFA
Lida Greenberg, CFA
Tracy Meyer
Amy Norflus
Charles Nguyen
The Fraenkel Group seeks to provide its clients with solid,
long-term performance, utilizing a portfolio strategy that
emphasizes sound judgment and conservative growth.
We invest in core growth companies that are characterized
by exceptional management teams, industry leadership
and stable growth models. Moreover, we look for oppor-
tunistic growth companies with catalysts that could lead
to enhanced growth, as well as companies that distribute
above-average dividends and provide organic growth.
This disciplined low-turnover investment approach has the
potential to produce solid performance while maintaining
a lower risk profile than the overall market. In 2017 we
successfully oriented our portfolio toward companies
that would benefit from tax reform and the relaxation of
regulatory burdens in the U.S., as well as an acceleration
of global economic growth. Many of our technology,
financial and industrial holdings prospered in this environ-
ment. As we progress through 2018 we expect to see the
nuances of tax reform flow through the global economy;
specifically, we anticipate a rise in corporate investments
and consumer spending. Consequently, we have increased
our exposure to companies that are increasing their invest-
ments in technology and innovation, which we believe will
benefit from this changing paradigm.
The Kantor Group’s mission is to provide individuals, families,
businesses and charitable organizations with tailored
investment strategies that aim to deliver returns consistent
with their investment objectives or circumstances. We are
very selective with our clients’ precious capital as we seek
attractive tax-efficient and risk-adjusted long-term returns
on their behalf. We conduct rigorous fundamental research
to identify companies with high-quality income statements
and balance sheets and sustainable returns on invested
capital. In the firm conviction that good governance leads
to superior shareholder outcomes, we actively engage with
management and corporate boards across myriad topics. We
offer clients a range of investment strategies rooted in fun-
damental research, prudent risk management and collabora-
tion across our team of dedicated sector analysts, including
our All-Cap Core equity strategy, retail funds and our Flexible
Credit strategy. We were very encouraged with
our performance throughout 2017, as individual security
selection—the foundation of our investment approach—
drove results. We entered 2018 with a still-constructive,
albeit increasingly selective, outlook for risk assets, driven
by solid global economic growth, lower corporate tax rates,
repatriation of foreign earnings and the continued emergence
of a more pro-business environment in the U.S.
2017 ANNUAL REPORT NEUBERGER BERMAN | 55
P R I VAT E C L I E N T
THE BOLTON GROUP
[ NOT PICTURED:
Brian Case, CFA;
Sharon Appelman;
Andrew Silverstein;
Mark D. Sullivan;
Miles Price;
John A. Kauffmann;
Andrew Greene]
David R. Pedowitz
F. Christian Reynolds, CFA Darren M. Fogel
John D. DeStefano
James C. Baker, CFA
Maria D. Pappas
Linda J. Ludwig
The Bolton Group is an experienced steward to high-net-worth individuals, families and institutions, partnering with our clients and their trusted
advisors to create customized investment solutions. Our team utilizes a variety of equity and fixed income disciplines to craft solutions based on
client objectives that range from capital appreciation to current income. We seek to add value by investigating and analyzing uncertainties—financial
complexities, cyclical challenges, operating disappointments, management changes, or acquisitions and divestitures—that cause high-quality and
otherwise attractive companies to trade at opportunistically low prices. Our team utilizes primary research with disciplined fundamental and financial
analysis to estimate risk and reward. A sharp focus on cash flow contributes to an analytical consistency that permits us to evaluate investment
opportunities and risks in portfolios. Performance in 2017 was driven by solid stock selection in information technology, industrials and consumer
discretionary. Looking ahead, we remain cautiously optimistic about the outlook for the U.S. stock market. The key underpinnings of this phase of
the bull market—monetary accommodation, moderate economic growth and low inflation—remain in place. We are investing in companies that
can benefit from rapid technological advances and disrupt others, rather than be disrupted. We remain humble about our ability to profit from
high-level macro positioning, maintaining an eclectic balance between economically sensitive and defensive investments despite the recent uptick in
economic growth. Reflecting our generally constructive outlook, however, we remain relatively overweighted in technology and financials, and less
well represented in defensive bond proxies such as utilities and consumer staples. The market backdrop for our investment selection could change
significantly if we detect substantial inflationary pressures or rising risk of recession.
THE EISMAN GROUP
THE SCHUPF GROUP
Elliott H. Eisman
Lillian Eisman
Steven Eisman
Dana Eisman Cohen
Michael E. Cohen
H. Axel Schupf
Marshall W. Jaffe
Elisabeth S. Lonsdale
THE KOPLIN LLOYD GROUP
THE ANDERSON GROUP
THE CAPITAL
GROUP
THE SLOATE
GROUP
Cary A. Koplin
Melinda L. Lloyd
Bradley M. Anderson
John E. Terzis, CFA
Yolanda R. Turocy
Laura J. Sloate, CFA
56 | NEUBERGER BERMAN ANNUAL REPORT 2017
ELIZABETH R. CRIBBS
HEAD OF CORPORATE SOCIAL RESPONSIBILITY
P E R S P E C T I V E S
O U R C O M M I T M E N T T O
C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
Driven and led by our employees, our philanthropic efforts leverage a broad range of
Neuberger Berman’s financial and human capital.
Service is at the core of our culture. In 2017, more than 90% of Neuberger Berman
Foundation grants were made to organizations recommended by employees, many of
whom are board members or long-term volunteers at these organizations. The support
of our community partners goes well beyond grants, however; in 2017 our employees
contributed more than 5,000 hours in service to our communities, and 63% of our
employees participated in these service programs—an employee engagement level well
above most of our peers. In addition, we provide Neuberger Berman clients with support
in pursuit of their personal philanthropic objectives along with their financial objectives.
A beloved firm tradition is our annual “Celebration With Service” week in May, when we
honor our reemergence as an independent company by giving back to our communities
through 100 volunteer projects in 17 cities and 10 countries around the world. More than
8,000 volunteers—employees, their family members and friends—have participated in
these projects over the past eight years.
While our employees volunteer with more than 75% of our grantees, a number of
community partners receive our highest level of service—allowing us to have a critical
impact on these organizations and the children they serve.
• IntoUniversity is a U.K.-based organization that supports more than 25,000 disadvantaged
children and youth across England through academic support, mentoring, life skills, and
college and career readiness programs. Since 2014 employees have provided after-school
tutoring sessions at IntoUniversity locations and hosted “Business in FOCUS” days at our
London office, helping students learn about business acumen, teamwork and leadership.
• The Association to Benefit Children (ABC) is a best-in-class organization dedicated
to fostering academic readiness and life preparedness for disadvantaged children and
their families. ABC receives significant funding from the Neuberger Berman Foundation
and has welcomed hundreds of employee volunteers throughout our longstanding
collaboration with them.
• Frederick Douglass Academy II (FDA II) is a public school in New York City that
seeks to provide predominantly low-income students with an educational foundation
that will enable them to succeed and thrive in and beyond college. Launched in 2015
by a committee of dedicated employees, our alliance with FDA II focuses on three areas
prioritized by the school: college and career awareness, academic enrichment and
school-resource development.
2017 ANNUAL REPORT NEUBERGER BERMAN | 57
B U S I N E S S R E V I E W : C L I E N T C O V E R A G E
ANDREW S. KOMAROFF
CHIEF OPERATING OFFICER AND HEAD OF GLOBAL CLIENT COVERAGE
Driving Deeper Engagement with Clients Globally
The Client Coverage team partners with our clients to deliver solutions tailored to their specific goals and requirements,
building strong, lasting relationships in the process. Composed of professionals in a range of disciplines, the 500-plus person
global team is united in its commitment to the firm’s client-centric operating philosophy and commitment to partnership.
In 2017 our global institutional team developed more than 130 new
client relationships to bring our total above 1,130, up more than 60%
from end-2012. Just as important, we continued to invest in deepening
engagement with existing clients, expanding 25 single-strategy rela-
tionships into multi-mandate ones last year. We added two new senior
professionals to lead our Consultant Relations efforts: Jamie Wong in
EMEA and Lesley Nurse in North America. We also continued to invest
in our global Insurance Solutions business, adding resources across this
multidisciplinary team to help us partner more closely with insurers.
Within our intermediary business we are pleased with our progress in
developing partnerships with major platforms. We now have significant
relationships with approximately 70 firms globally, and we have been
leveraging the strength of our investment platform to introduce new
opportunities across a broad range of capabilities—including alterna-
tive investments such as private equity tailored to the specific needs of
investors in this channel.
Our wealth management clients—including individuals, families and
their foundations—have voiced growing interest in comprehensive
engagement and investment solutions. As such, we are leveraging an
increasingly broad platform that includes trust and estate planning
advice and fiduciary services from our Trust Company, and wealth
planning under the leadership of new hire Steve Polizzi. More and more,
we see private equity and options strategies supplementing core portfolio
exposures. We also are driving a strategic initiative to enhance our use of
technology to support our clients.
As the firm continues to invest globally, we are particularly gratified by
the expansion of our UCITS platform through which we offer a range
of more than 40 investment funds across various jurisdictions outside
the U.S. Our UCITS business grew by nearly 50% in 2017, and we
ranked among the top 25 firms in terms of net new assets1. Critical to
our momentum has been close coordination across our global Client
Coverage team, enabling us to serve those business partners with a
global presence most effectively.
We also achieved meaningful milestones in new markets last year. In Chi-
na we became one of the first managers granted a license to establish a
local investment management operation, allowing us to offer domestic
strategies in the rapidly evolving $11 trillion onshore market. Similarly,
in Taiwan we expanded the scope of our licenses so we can manage
Taiwanese-domiciled strategies for local onshore investors.
Early 2018 gave us a taste of the volatility that may become common-
place as investors continue to wrestle with the normalization of central
bank policy and dynamic geopolitical events. We stand ready to assist
our clients as they negotiate this more complicated landscape.
1Morningstar, as of December 31, 2017.
2017 ANNUAL REPORT NEUBERGER BERMAN | 59
C L I E N T C O V E R A G E
THE HAGUE
ZURICH
FRANKFURT
PARIS
LONDON
MADRID
BOGOTA
BUENOS AIRES
MILAN
DUBAI
DIK VAN LOMWEL
HEAD OF EMEA AND LATIN AMERICA
EMEA and Latin America
We are pleased to report that the EMEALA business had a strong 2017.
Notably, our private markets franchise continued to resonate with clients
searching for higher-yielding investment solutions and increased allocations
to illiquid assets, while our emerging markets debt and non-investment grade
platforms also experienced strong interest. We also were encouraged by good
client flows to newer strategies such as corporate hybrids, uncorrelated
strategies and equity index put-writing. Our overall UCITS platform grew by
nearly 50% in 2017, with EMD again leading the way.
We welcomed a number of new hires to the team in 2017. In London, Rob
Payne and Jamie Wong joined to lead our local Insurance Solutions and
Consultant Relations efforts, respectively, while Alex Gitnik joined as Fixed
Income Client Portfolio Manager and Gemma Cowie came on board in the
new role of Head of Product Development, EMEA. We added numerous
client associates in the U.K., Madrid, Paris, Buenos Aires and Bogota, and our
relationship with Becon in Latin America has gained great traction since our
partnership began in June. We also continued to bolster our local investment
teams in 2017, particularly our private equity teams in Milan and London.
Much focus in 2017 was paid to preparing our business for the MiFID II
regulations slated to come into effect on January 3, 2018. Going forward, a key
operational focus is Brexit planning, and we are confident we will be in a strong
position to continue to deliver on behalf of clients regardless of the exact terms
of the U.K.’s exit from the EU.
Markets in 2018 are unlikely to be as friendly as they were in 2017, so we will
be partnering closely with clients to continue developing innovative investment
solutions that meet their changing needs. A notable part of this effort will be
bringing to clients interesting solutions from Breton Hill, a team acquired by
Neuberger Berman in late 2017 that focuses on risk premia and factor investing.
Tom W. Douie
EMEA INTERMEDIARIES
(LONDON)
Edward J.M. Jones
U.K. INSTITUTIONAL
(LONDON)
Jamie Wong
EMEA CONSULTANTS
(LONDON)
Robert Payne
EMEA INSURANCE
(LONDON)
Cas A.H. Peters
BENELUX
(THE HAGUE)
Mark Oestergaard
SCANDINAVIA
(LONDON)
Fabio L. Castrovillari
DACH REGION
(ZURICH)
Christian Puschmann
GERMANY AND AUSTRIA
(FRANKFURT)
Charles Soullard
FRANCE
(PARIS)
Javier Nunez
de Villavicencio
IBERIA (MADRID)
Marco Avanzo-Barbieri
ITALY
(MILAN)
Jahangir Aka
MIDDLE EAST & AFRICA
(DUBAI)
Mauricio Barreto
ANDEAN REGION
(COLOMBIA)
Jenna Lawford
EMEA CLIENT SERVICE
(LONDON)
60 | NEUBERGER BERMAN ANNUAL REPORT 2017
CHICAGO
NEW YORK
TOKYO
SEOUL
RYO OHIRA
HEAD OF EAST ASIA
East Asia
Assets under management in the East Asia region grew by more than 30%
in 2017, representing the second consecutive year in which the business
expanded by around $10 billion. Our clients in the region continued to value
the investment opportunities and performance of our strategies and to
demonstrate trust in our high-quality client service.
We were pleased to see that the new thematic equity funds we launched
in 2017 have attracted the interest of retail investors. We provided over
200 training sessions through more than 50 local distributors and have
seen inflows in excess of $1 billion since these funds’ inception. Driven by
increasing demand from institutional clients, assets under management in
the private asset space reached $4 billion thanks to customized investment
programs as well as separate accounts. In addition, we held more than
50 seminars as a part of our “knowledge transfer” efforts to share fresh
insights into investments and market views. Notably, seminars featuring
Dyal Capital and ESG investing attracted many clients and received positive
response. Based on our expanding presence and credibility in the region, our
capabilities—featuring a broad range of investment strategies, from traditional to
alternative—have been met with greater appreciation from clients.
Going forward we will remained focused on offering investment solutions
that are aligned with clients’ needs, complemented by dedicated service
and a commitment to always putting client interests first. In 2017 we were
delighted to welcome multiple product specialists in the region and a new
member to our East Asia desk in Chicago. We also look forward to establish-
ing an East Asia desk in London to more effectively deliver useful informa-
tion to clients. We believe such resources reduce client concerns regarding
time differences and geographic distance. As our organization and business
grows, we will continue to emphasize flexibility, speed and teamwork across
all functions.
Komei Asaba
INSTITUTIONAL &
INTERMEDIARIES (TOKYO)
Yutaro Nishihara
INSTITUTIONAL
(TOKYO)
Motomi Hiratsuka
INTERMEDIARIES &
INSTITUTIONAL (TOKYO)
Takashi Ikushima
CLIENT PORTFOLIO
MANAGEMENT (TOKYO)
Akihiro Koide
CLIENT PORTFOLIO
MANAGEMENT–EQUITY
(TOKYO)
Mitsuhiro Shimura
CLIENT REPORTING
(TOKYO/CHICAGO)
DaeYeon Kim
KOREA
(SEOUL)
YoungSun Na
KOREA
(SEOUL)
Yoshiyuki Yagisawa
PRIVATE EQUITY
(NEW YORK)
We remain firmly committed to deepening client relationships in Japan and
Korea by delivering investment solutions tailored to their specific goals and
requirements with first-class service.
Hiroyasu Tamura
CLIENT SERVICE
(CHICAGO)
2017 ANNUAL REPORT NEUBERGER BERMAN | 61
C L I E N T C O V E R A G E
SHANGHAI
TAIPEI
HONG KONG
SINGAPORE
MELBOURNE
NICK J. HOAR
HEAD OF ASIA PACIFIC
Asia Pacific
In 2017 we continued to make significant progress expanding our Asia Pacific foot-
print and delivering new portfolio management solutions to clients across the region.
We achieved several milestones last year, most notably in China and Taiwan. In China
we launched a full-service asset management business located in Shanghai, making
us one of the first foreign asset management firms to receive an operating license to
manage money for local investors. China clearly represents a significant, long-term
growth opportunity for Neuberger Berman, and we are committed to continuing to
build our presence in this important market. Meanwhile, we continued to expand our
presence and deepen our local commitment in Taiwan. We rolled out our first onshore
fund to Taiwan retail investors with the launch of our Securities Investment Trust En-
terprise (SITE), and we expect the ability to manufacture and distribute onshore funds
will give us a competitive advantage to better serve this key market.
Investors expressed wariness over high equity valuations and tighter credit spreads
throughout 2017, and we responded to their concerns with investment solutions
that offer diversified income and attractive risk-adjusted return potential. Our UCITS
products—including emerging markets debt, flexible bond strategies and defensive
equities strategies—continued to gain traction among private and retail clients.
On the institutional front we saw strong demand in alternatives and private equity
strategies that focus on delivering uncorrelated returns.
To support our growing business we continued to recruit talented professionals and
to invest in our infrastructure. Key appointments in 2017 included Bin Yu, Senior
Portfolio Manager—China Equities, and Peter Ru, Senior Portfolio Manager—China
Fixed Income. We have also recruited new hires in China across Portfolio Manage-
ment, Legal and Compliance, Marketing, Product and Research functions. On the
Client Coverage side of the business we were delighted to welcome Greg Wu as
Head of Institutions—Taiwan.
Given the expansion of our business in the region we added an office in Beijing and
have just completed our move to a new Shanghai office in the city’s Puxi district. We
also took additional space in both our Hong Kong and Taipei offices to accommodate
current and future growth.
62 | NEUBERGER BERMAN ANNUAL REPORT 2017
Patrick Liu
GENERAL MANAGER CHINA
(SHANGHAI)
Marco Tang
FINANCIAL INSTITUTIONS
(SHANGHAI)
William Hui
INSTITUTIONAL
(SHANGHAI)
Jovi Chen
GENERAL MANAGER TAIWAN
(TAIPEI)
Greg Wu
INSTITUTIONAL
(TAIPEI)
Thomas Holzherr
INSTITUTIONAL
(SINGAPORE)
Vincent Lim
FINANCIAL INSTITUTIONS
(SINGAPORE)
Pauline Cheng
FINANCIAL INSTITUTIONS
(HONG KONG)
Paul O’Halloran
INSTITUTIONAL
(MELBOURNE)
Lucas Rooney
INSTITUTIONAL
(MELBOURNE)
Angela Verco
INSTITUTIONAL
(MELBOURNE)
Linda Lam
CLIENT SERVICE
(HONG KONG)
MATTHEW H. MALLOY
HEAD OF NORTH AMERICA INSTITUTIONAL AND
GLOBAL HEAD OF INSURANCE SOLUTIONS
NA Institutional
Despite a strong, albeit uncertain, market environment, institutional
investors continue to face a cacophony of challenges, from funding
issues to asset allocation to risk and liability management. Lower return
outlooks and the increasingly complex risk environment have created
a new imperative for more effective relationships between investment
managers and their clients, elevating the demand for investment
insights, solutions providers and, in some cases, strategic partnerships.
The engagement between manager and client in a strategic partnership
runs much deeper than in a simple investment mandate, better aligning
the two parties around the prevailing challenges and the strategies to
overcome them. The nature of a strategic partnership varies according
to client needs and can involve everything from asset allocation insights
and multi-asset class portfolio management to joint research projects
and customized product innovations. Leveraging manager relationships
can better position institutions to meet their desired investment out-
comes, cost efficiently and with limited strain on internal resources.
Consultants remain a vital part of the institutional investment landscape and
an important part of our client-engagement effort. Increasingly, consultants
are being tapped for more than just traditional manager evaluation, as
institutional investors seek a broader, more comprehensive set of services, in
some cases including OCIO responsibility. To strengthen our connection with
this critical segment, we hired Lesley Nurse to lead and direct our Consultant
Relations efforts in North America and with global consultants.
SCOTT E. KILGALLEN
HEAD OF NORTH AMERICA INTERMEDIARY DISTRIBUTION
NA Intermediary
After equity markets surged forward without pause throughout 2017,
complacency may be one of the biggest threats facing individual
investors this year—and one of the biggest opportunities for skilled
financial advisors to ensure that their clients are positioned for what
is likely to be a more complicated investment environment going
forward. Offering a broad range of investment solutions across product
types, fee structures and liquidity profiles, we seek to provide advisors
with the strategies and resources needed to help keep their clients on
track. At year-end 2017 our North American intermediary partners had
entrusted us with $67 billion of their clients’ assets across a range of
investment disciplines.
We continued to emphasize collaboration with our key intermediary
partners in 2017, offering new and interesting investment solutions in
addition to our extensive lineup of traditional strategies. For example,
last year we provided advisors and their clients with access to private
markets via two institutional-quality strategies tailored to the needs
of individual investors: a registered private equity fund with a reduced
minimum investment and more flexible investor qualifications, and
a private equity co-investment fund with condensed investment and
lock-up periods. In support of our defined contribution partners, we
launched a suite of collective investment trusts whose increased trans-
parency, ease of use and fee flexibility are designed to meet the diverse
needs of plan sponsors and participants.
To increase our client focus and strengthen relationships, we continued
to invest in our team of more than 50 professionals and to offer a wider
range of capabilities. This includes providing asset class and market
insights more tailored to specific institutional segments, and offering
custom analytics to help clients make more informed decisions around
asset allocation, investment strategy and risk management. As always,
we will emphasize the quality of our service in 2018 as we look to
further deepen relationships with clients and their consultants.
We appreciate the value of providing advisors with the tools they
need to build enduring relationships in a competitive marketplace,
and through our Neuberger Berman Advisor Institute we offer
actionable programs that help advisors tackle today’s most important
business challenges, from client retention to intergenerational wealth
transfer. In 2017 our Advisor Institute team held 185 meetings and
coaching sessions, and we look forward to continuing to offer their
insight and support to our partners.
2017 ANNUAL REPORT NEUBERGER BERMAN | 63
C L I E N T C O V E R A G E
MATTHEW H. MALLOY
HEAD OF NORTH AMERICA INSTITUTIONAL AND
GLOBAL HEAD OF INSURANCE SOLUTIONS
Global Insurance
Insurers’ business models remain challenged, with profitability facing pressures across multiple dimensions. Financial
market direction is uncertain, geopolitical tensions are high, and regulatory dynamics continue to evolve, often with
unintended consequences. Against this backdrop, insurers’ investment portfolios are required to make an even greater
contribution to the bottom line.
Our insurance clients rely on our industry-specific insights, robust
analytical support and global markets perspectives to help achieve
better outcomes. With market conditions as challenging as ever,
insurers are continuing to look for solutions beyond their traditional
investment strategies; globally, we’ve seen our clients evaluating
and investing in a broader array of asset classes, strategies and
customized solutions. From our vantage point, we’ve witnessed new or
increased allocations to fixed income strategies like emerging markets
debt, taxable municipal bonds, collateralized loan obligations and
private residential home loans, as well as alternative investments
such as private equity and private credit. Importantly, our clients
continue to seek innovative and capital-efficient structures
to optimize both their investment outcomes and impact to their
overall businesses.
Neuberger Berman has been managing a range of traditional and
alternative assets on behalf of insurance clients for more than two
decades, and we continue to invest in resources to support this
important client segment. As of end-2017 we managed approximately
$32 billion of invested and committed capital on behalf of insurers,
a 30% increase from 2016. We continued to build out our Insurance
Solutions Group in 2017, adding key resources in the U.S., Europe
and Asia, bringing the team to 12 professionals dedicated to
advising and servicing insurers globally.
In 2018 we will continue to work closely with our insurance clients to
meet their evolving needs, helping them find the best solutions among
a wide range of traditional and alternative investment strategies.
64 | NEUBERGER BERMAN ANNUAL REPORT 2017
P E R S P E C T I V E S
WILLIAM A. ARNOLD
CHIEF FINANCIAL OFFICER
OUR COMMITMENT TO
FINANCIAL RISK MANAGEMENT
Consistent with our colleagues across the firm, a client-centric mindset
drives our approach to financial risk management.
Protecting the firm is one of our guiding principles. We take a long-term
view, thinking in years, not months—and purposely keep our balance
sheet more liquid and our capital structure conservative with longer
dated maturities.
This dedication to stewardship, in turn, has enabled us to invest prudently
in our business, in our platform and in our people. We have broadened
our capabilities, increased our resources, improved technology and built
a more diversified and stable investment platform. More concretely for
our clients, we have introduced new strategies with existing investment
teams, added new investment teams and continued to invest in our
global client coverage franchise. We have made these investments not to
improve our quarterly results but because we believe it will drive greater
long-term stability across the firm and provide opportunities for deeper
relationships with our clients.
Importantly, as we focus on protecting the firm and investing for the future,
we do so in close partnership with our colleagues across Neuberger
Berman. By understanding the objectives and long-term strategy of our
investment, client coverage, and internal support and control teams, we
are able to ensure we are properly allocating our resources and capital
to initiatives that will ultimately serve our clients well.
SUMMARY FINANCIAL INFORMATION
(U.S. Dollars in Millions)
Dec 2017
Cash and Cash Equivalents
Investments
Receivables
Goodwill and Other Intangibles
Other Assets
Total Assets
Senior Notes Payable
Accrued Compensation and Benefits
Accrued Expenses and Other Liabilities
Total Liabilities
Equity1
Total Liabilities and Equity
Net Revenues
534
442
340
581
209
2,106
600
458
406
1,464
642
2,106
$1,609
1 Equity includes $77 million of non-controlling interests from employee
investments held indirectly by employees.
ASSETS UNDER MANAGEMENT
(U.S. Dollars in Billions)
2017
2016
2015
2014
2013
2012
2011
2010
295
255
240
250
242
205
193
190
2017 ANNUAL REPORT NEUBERGER BERMAN | 65
B O A R D O F D I R E C T O R S
GEORGE H. WALKER
JOSEPH V. AMATO
Chairman and Chief Executive
Officer, Neuberger Berman
President, Neuberger Berman;
Chief Investment Officer—
Equities
ROBERT W. D’ALELIO
STEVEN A. KANDARIAN
Portfolio Manager,
Small Cap
Chairman, President and CEO,
MetLife; Formerly CIO, MetLife
Formerly Executive Director,
Pension Benefit Guaranty
Corporation (PBGC)
RICHARD B. WORLEY
LAWRENCE ZICKLIN
Formerly CEO and CIO,
Morgan Stanley Investment
Management
Formerly Chairman, Miller Ander-
son and Sherrerd
Clinical Professor, New York Uni-
versity Stern School of Business
Chairman, Rand Center for
Corporate Ethics and Governance
Formerly Managing Partner
and Chairman, Neuberger
Berman
OUR FOUNDER—ROY NEUBERGER
The Art of Investment
When Roy Neuberger started collecting art in 1939,
he bought pieces that spoke to him. “I buy because
I love the work,” he said. The fact that many of his
favorite artists—like Jackson Pollock, Edward Hopper
and especially Milton Avery—went on to become
household names is a testament to his unique insight.
In art, as in investment, Roy didn’t follow the market—
the market followed him.
At the firm he founded in that same year of 1939, we
try to live up to those principles. We value experience
but have an eye for innovation. Our culture is strong;
our teams are independent. Company fundamentals
and client objectives are what drive us, not the noise
of the markets. That is the art of investing, the art of
partnership, the art of service.
66 | NEUBERGER BERMAN ANNUAL REPORT 2017
‘ 4 0 A C T M U T U A L F U N D B O A R D
JOSEPH V. AMATO
ROBERT J. CONTI
MICHAEL J. COSGROVE
MARC GARY
MARTHA C. GOSS
MICHAEL M. KNETTER
President, Neuberger Berman;
Chief Investment Officer—
Equities
President, Mutual Funds
President, Carragh
Consulting USA
Formerly Executive,
General Electric Company and
Trustee, GE’s
Pension and Benefits Plan
Formerly Executive
Vice President and
General Counsel,
Fidelity Investments
Formerly Corporate
Treasurer and Enterprise Risk
Officer, The Prudential
Insurance Company
of America
President and CEO,
University of Wisconsin
Foundation
Formerly Dean, School
of Business, University
of Wisconsin
DEBORAH C. McLEAN
GEORGE W. MORRISS
TOM D. SEIP
CANDACE L. STRAIGHT
JAMES G. STAVRIDIS
PETER P. TRAPP
Independent
Non-Executive Chairman
of the Board
Formerly Senior Executive, The
Charles Schwab
Corporation
Director, Montpelier Re
Formerly Principal,
Head and Partners
Dean, Fletcher School
of Law and Diplomacy,
Tufts University
Formerly Admiral,
United States Navy
Formerly Ford Motor
Company Executive
Formerly President, Sentry Life
Insurance Company
Adjunct Professor,
Columbia University
School of International
and Public Affairs
Adjunct Professor,
Columbia University
School of International
and Public Affairs
Formerly Executive Vice
President and CFO, People’s
Bank, CT
Trustee of the Year (2018),
Fund Intelligence’s Mutual
Fund Industry Awards
U C I T S F U N D B O A R D
NOT PICTURED:
TOM FINLAY
Independent Non-Executive Director of the Board
Formerly Bank of Ireland Asset Management
(the Fund Management division of the Bank of Ireland Group)
Formerly a Barrister by profession
PAUL SULLIVAN
Independent Non-Executive Director of the Board
Formerly Executive Director, the Irish Sovereign Debt Management Office,
the National Treasury Management Agency
Formerly a Vice President, Chase Manhattan Bank (now JP Morgan)
GRAINNE ALEXANDER
MICHELLE S. GREEN
ANDY OLDING
General Counsel of EMEA and
Latin America,
Neuberger Berman
Head of EMEA Mutual Fund
Administration,
Neuberger Berman
Independent Non-Executive
Director of the Board
Formerly a European partner,
Mercer Investment Consulting
Formerly Chief Executive, F&C
Management
(F&C Ireland)
2017 ANNUAL REPORT NEUBERGER BERMAN | 67
PA R T N E R S H I P C O M M I T T E E
ROBERT W. D’ALELIO
ROB DRIJKONINGEN
RICHARD J. GLASEBROOK
CHARLES C. KANTOR
MATTHEW H. MALLOY
RICHARD S. NACKENSON
RYO OHIRA
THOMAS P. O’REILLY
MICHAEL D. REES
CONRAD A. SALDANHA
MARVIN C. SCHWARTZ
BENJAMIN E. SEGAL
ANTHONY D. TUTRONE
JUDITH M. VALE
68 | NEUBERGER BERMAN ANNUAL REPORT 2017
O P E R AT I N G C O M M I T T E E
JOSEPH V. AMATO
ROBERT J. ARANCIO
WILLIAM A. ARNOLD
WILLIAM A. BRAVERMAN
ROBERT J. CONTI
TIMOTHY F. CREEDON
KEN DEREGT
ALAN H. DORSEY
ROBERT L. EASON
MARGARET E. GATTUSO
NICK J. HOAR
ALAN L. ISENBERG
SCOTT E. KILGALLEN
LAWRENCE J. KOHN
ANDREW S. KOMAROFF
J. DOUGLAS KRAMER
JACQUES G. LILLY
PATRICK C. LOMELO
MATTHEW H. MALLOY
LESLEY NURSE
RYO OHIRA
IAN D. PECKETT
KENNETH G. RENDE
BRIEN P. SMITH
BRAD C. TANK
ANTHONY D. TUTRONE
DIK VAN LOMWEL
GEORGE H. WALKER
HEATHER P. ZUCKERMAN
2017 ANNUAL REPORT NEUBERGER BERMAN | 69
M A N A G I N G D I R E C T O R S
A
Jahangir Aka
Kenneth Y. Amano
Joseph V. Amato
Bradley M. Anderson
Robert J. Arancio
Judd M. Arnold
William A. Arnold
Komei Asaba
Sherrell J. Aston
B
Sean M. Badcock
Jonathan Bailey
James C. Baker
Lorenzo Baraldi
Thanos Bardas
John J. Barker
Itai Baron
Michael Barr
Ashok Bhatia
Matthew F. Bird
Vivek Bommi
Stefano Bontempelli
Julian Bostic
Jim D. Bowden
Richard N. Bradt
William A. Braverman
Eric Brotman
Danielle B. Brown
David M. Brown
David Bunan
John P. Buser
Vasantha Butchibabu
C
Fabio C. Cane
Ray Carroll
Darren L. Carter
Brian M. Case
Stephen J. Casey
Fabio L. Castrovillari
Brad E. Cetron
Kent Chen
Dana Eisman Cohen
Elias Cohen
Michael E. Cohen
Robert J. Conti
Russ Covode
Timothy F. Creedon
Christopher M. Crevier
Elizabeth R. Cribbs
Robert T. Croke
D
Robert W. D’Alelio
Pieter D’Hoore
Paul D.S. Daggett
R. Ross David
Jacqueline E. de Sanctis
Luca Deantoni
Patrick Deaton
Ken deRegt
Anthony M. DeSantis
John D. DeStefano
Derek R. Devens
Alan H. Dorsey
Tom W. Douie
D. Richard Dowdle
Daniel J. Doyle
Rob J. Drijkoningen
John D. Dyment
Ingrid S. Dyott
E
Robert L. Eason
Elliott H. Eisman
Lillian Eisman
Steven Eisman
Michael N. Emmerman
F
Ethan A. Falkove
Marco Cerrina Feroni
Seth J. Finkel
Stephen J. Flaherty
Patrick H. Flynn
Darren M. Fogel
Ann Marie Foss
Drew D. Fox
Francis L. Fraenkel
Gregory P. Francfort
G
Jacob B. Gamerman
James J. Gartland
Dmitry Gasinsky
Margaret E. Gattuso
Amy S. Gilfenbaum
Michelle A. Giordano-Valentine
Alex Gitnik
Theodore P. Giuliano
Richard J. Glasebrook
Terrence J. Glomski
Carolyn S. Golub
Jennifer R. Gorgoll
Michelle S. Green
Alan I. Greene
Michael C. Greene
Simon Griffiths
Virginia M.Guy
H
Brian E. Hahn
Marc Hamerling
Aisha S. Haque
James C.F. Harvey
Todd E. Heltman
Jason C.D. Henchman
Nick J. Hoar
Lori L. Holland
Michael J. Holmberg
Will Hunter
I
Takashi Ikushima
Fred R. Ingham
James L. Iselin
Alan L. Isenberg
Corey A. Issing
J
Marshall W. Jaffe
Ajay Singh Jain
Andrew A. Johnson
Brian C. Jones
Edward J.M. Jones
Jon B. Jonsson
K
Michael W. Kamen
Gerald P. Kaminsky
Michael J. Kaminsky
Charles C. Kantor
Susan B. Kasser
John A. Kauffmann
Maura Reilly Kennedy
Judith Ann Kenney
Brian P. Kerrane
Clay R. Khan
David A. Kiefer
Scott E. Kilgallen
Erik L. Knutzen
Christopher J. Kocinski
Scott L. Koenig
Lawrence J. Kohn
Andrew S. Komaroff
Cary A. Koplin
J. Douglas Kramer
Michael S. Kramer
Holly Newman Kroft
David G. Kupperman
Nate Kush
Anton Kwang
L
Sajjad S. Ladiwala
Ugo Lancioni
Andrew C. Laurino
Joseph W. Lawrence
Diane E. Lederman
Stanley G. Lee
Richard S. Levine
Jacques G. Lilly
70 | NEUBERGER BERMAN ANNUAL REPORT 2017
Vincent Lim
Kristian J. Lind
Patrick Liu
Maria C. Llerena
Melinda L. Lloyd
Patrick C. Lomelo
Elisabeth S. Lonsdale
Linda J. Ludwig
Raoul C. Luttik
James A. Lyman
Joseph P. Lynch
David J. Lyon
M
Frank Maeba
Jeff A. Majit
Matthew H. Malloy
Jared Mann
Julian H. Marks
Thomas J. Marthaler
James McAree
Martin E. Messinger
Patrizia Micucci
S. Blake Miller
Norman Milner
David H. Morse
N
Richard S. Nackenson
Benjamin H. Nahum
Zain Naqi
Christian Neira
Charles Nguyen
Lesley Nurse
O
Kevin J. O’Friel
Paul D. O’Halloran
Thomas P. O’Reilly
Mark A. O’Sullivan
Ryo Ohira
Erik Ostrowski
P
Daniel P. Paduano
Maria D. Pappas
Robert H. Pearlman
Ian D. Peckett
David R. Pedowitz
Tristram C. Perkins
Benjamin B. Perl
Cas A.H. Peters
William J. Peterson
Stuart J. Pollak
Sandy M. Pomeroy
Nish V. Popat
Samuel N. Porat
David S. Portny
Brendan J. Potter
Jason L. Pratt
Carly Brooks Prutkin
Christian Puschmann
Q
Joseph F. Quirk
R
Douglas A. Rachlin
Srikrishnan M. Rajan
Henry Ramallo
Ram Ramaswamy
Michelle L. Rappa
Michael Recce
Lisa H. Reed
Matthew D. Rees
Michael D. Rees
Marc A. Regenbaum
Brett S. Reiner
Kenneth G. Rende
Carter P. Reynolds
Christian F. Reynolds
J. Blake Rice
Brandon Robinson
Joana Rocha Scaff
Lucas J. Rooney
David J. Rosa
Vanessa Rosenthal
David M. Ross
Martin J. Rotheram
Joseph A. Rotter III
Patrick C. Ru
Peter Ru
S
Conrad A. Saldanha
Eli M. Salzmann
Martin A. Sankey
Paul A. Sauer
Gideon Schapiro
H. Axel Schupf
Marvin C. Schwartz
Mindy G. Schwartzapfel
Benjamin E. Segal
Saurin D. Shah
Monica L. Sherer
Steve Shigekawa
Jonathan D. Shofet
Yves C. Siegel
Zachary P. Sigel
Ronald B. Silvestri
Prashant Singh
Laura J. Sloate
Brien P. Smith
Francesco Sogaro
Amit Solomon
Thomas A. Sontag
Amanda Spencer
Gregory G. Spiegel
Matthew L. Steege
Michelle B. Stein
Peter Sterling
Stephanie J. Stiefel
David S. Stonberg
Raymond A. Sullivan
Bob Summers
Jean-Paul Sursock
Richard J. Szelc
T
Brian G. Talbot
Brad C. Tank
Jason Tauber
Lee J. Tawil
H. Tripp Taylor
Terri L. Towers
Elizabeth Traxler
Kenneth J. Turek
Yolanda R. Turocy
Anthony D. Tutrone
U
Gorky R. Urquieta
V
Judith M. Vale
Bart A. van der Made
Dik van Lomwel
Pim M. van Schie
Peter J. von Lehe
W
George H. Walker
Ronit M. Walny
Jacquelyn A. Wang
Sean J. Ward
David I. Weiner
Barbara Wenig
Richard M. Werman
Obadiah J. Wilford
Andrew Wilmont
Stephen Wright
Y
Bin Yu
Z
Patricia Miller Zollar
Heather P. Zuckerman
2017 ANNUAL REPORT NEUBERGER BERMAN | 71
All information is as of December 31, 2017, unless otherwise indicated.
This material is provided for informational purposes only and nothing herein
constitutes investment, legal, accounting or tax advice, or a recommendation to
buy, sell or hold a security. This material is general in nature and is not directed
to any category of investors and should not be regarded as individualized, a
recommendation, investment advice or a suggestion to engage in or refrain
from any investment-related course of action. Neuberger Berman is not provid-
ing this material in a fiduciary capacity and has a financial interest in the sale
of its products and services. Neuberger Berman, as well as its employees, does
not provide tax or legal advice. You should consult your accountant, tax adviser
and/or attorney for advice concerning your particular circumstances. Informa-
tion is obtained from sources deemed reliable, but there is no representation or
warranty as to its accuracy, completeness or reliability. All information is current
as of the date of this material and is subject to change without notice. Any
views or opinions expressed may not reflect those of the firm as a whole. This
material may include estimates, outlooks, projections and other “forward-look-
ing statements.” Due to a variety of factors, actual events or market behavior
may differ significantly from any views expressed. Neuberger Berman products
and services may not be available in all jurisdictions or to all client types. Invest-
ing 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. Indexes are unmanaged and are
not available for direct investment. Past performance is no guarantee
of future results.
Firm data, including employee and assets under management figures, reflect
collective data for the various affiliated investment advisers that are subsid-
iaries of Neuberger Berman Group LLC (the “firm”). Firm history and timelines
includes the history and business expansions of all firm subsidiaries, including
predecessor entities and acquisition entities. Investment professionals refer-
enced include portfolio managers, research analysts/associates, traders, and
product specialists and team dedicated economists/strategists.
Mutual funds are not available to investors outside of the U.S. Neu-
berger Berman BD LLC is the distributor of the Neuberger Berman mutual
funds. Member FINRA.
An investor should consider the investment objectives, risks and
fees and expenses of any fund carefully before investing. This and
other important information can be found in each fund’s prospec-
tus, and if available summary prospectus, which you can obtain by
calling 877.628.2583. Please read the prospectus, and if available
the summary prospectus, carefully before making an investment.
Important Information about Risk
All stocks are subject to investment risk, including the risk that they may lose
value. Small- and mid-capitalization stocks may have limited operating his-
tories and resources and may trade less frequently and in lower volume than
larger company stocks, which may make them more volatile and vulnerable
to financial and other risks. Compared with smaller companies, large-cap
companies may be less responsive to changes and opportunities and may lag
other types of stock in performance.
Foreign securities involve risks in addition to those associated with compara-
ble U.S. securities. Additional risks include exposure to less developed or less
efficient trading markets; social, political or economic instability; fluctuations
in foreign currencies or currency redenomination; potential for default on sov-
ereign debt; nationalization or expropriation of assets; settlement, custodial
or other operational risks; and less stringent auditing and legal standards. As
a result, foreign securities may fluctuate more widely in price, and may also
be less liquid, than comparable U.S. securities. World markets, or those in a
particular region, may all react in similar fashion to important economic or
political developments. In addition, foreign markets may perform differently
than the U.S. market. Changes in currency exchange rates could adversely im-
pact investment gains or add to investment losses. Currency exchange rates
can be affected unpredictably by intervention, or failure to intervene, by U.S.
or foreign governments or central banks or by currency controls or political
developments in the U.S. or abroad.
Value stocks may remain undervalued during a given period or may not ever
realize their full value. This may happen, among other reasons, because of a
failure to anticipate which stocks or industries would benefit from changing
market or economic conditions. Because the prices of most growth stocks
are based on future expectations, these stocks tend to be more sensitive
than value stocks to bad economic news and negative earnings surprises.
Bad economic news or changing investor perceptions may adversely affect
growth stocks across several sectors and industries simultaneously.
Additional Risk Information for Multi-Cap Opportunities Fund
From time to time, based on market or economic conditions, the Fund may
have significant positions in one or more sectors of the market. To the extent
the Fund invests more heavily in particular sectors, its performance will be
especially sensitive to developments that significantly affect those sectors.
Individual sectors may be more volatile, and may perform differently, than the
broader market. The industries that constitute a sector may all react in the
same way to economic, political or regulatory events.
72 | NEUBERGER BERMAN ANNUAL REPORT 2017
Companies that are considered “special situations” include, among others:
companies that have unrecognized recovery prospects or new management
teams; companies involved in restructurings or spin-offs; companies emerg-
ing from, or restructuring as a result of, bankruptcy; companies making initial
public offerings that trade below their initial offering prices; and companies
with a break-up value above their market price. Investing in special situations
carries the risk that certain of such situations may not happen as anticipated
or the market may react differently than expected to such situations. Certain
special situations carry the additional risks inherent in difficult corporate tran-
sitions and the securities of such companies may be more likely to lose value
than the securities of more stable companies.
Additional Risks Information for Emerging Markets Equity Fund
Governments of emerging market countries may be more unstable and more
likely to impose capital controls, nationalize a company or an industry, place
restrictions on foreign ownership and on withdrawing sales proceeds of secu-
rities from the country, and/or impose burdensome taxes that could adversely
affect security prices. These countries may also have less developed legal and
accounting systems. Securities issued in these countries may be more volatile
and less liquid than securities issued in foreign countries with more devel-
oped economies or markets. Changes in currency exchange rates bring an
added dimension of risk. Currency fluctuations could erase investment gains
or add to investment losses. From time to time, the Fund may hedge against
some currency risks; however, the hedging instruments may not always per-
form as the Fund expects and could produce losses. Suitable hedging in-
struments may not be available for currencies of emerging market countries.
The risks involved in seeking capital appreciation from investments primarily
in companies based outside the United States are set forth in the prospectus.
From time to time, based on market or economic conditions, the Fund may
invest a significant portion of its assets in one country or geographic region.
If the Fund does so, there is a greater risk that economic, political, social and
environmental conditions in that particular country or geographic region may
have a significant impact on the Fund’s performance and that the Fund’s per-
formance will be more volatile than the performance of more geographically
diversified funds.
Important information about awards and accolades:
Awards referenced do not reflect the experiences of any Neuberger Berman
client and readers should not view such information as representative of any
particular client’s experience or assume that they will have a similar investment
experience as any previous or existing client. Awards are not indicative of the
past or future performance of any Neuberger Berman product or service.
Morningstar “Pan-European Fixed Income Fund Manager of the Year 2018”
award: 2018 Morningstar Pan-European Fund Manager of the Year Awards:
“Pan-European Fixed Income Fund Manager of the Year 2018.” Neuberger
Berman Emerging Market Debt—Hard Currency, managed by Bart van der
Made, Rob Drijkoningen and Gorky Urquieta.
The winners of the Fund Manager of the Year Awards are nominated and
selected by Morningstar’s Europe-based team of manager research analysts.
The awards are thus based purely on the qualitative insights of those ana-
lysts. To be nominated for an award, a manager should be running an active
fund that is among the approximately 900 vehicles that receive a Morning-
star Analyst Rating in Europe but, to hold nominees to the highest standards,
that fund should also be a Medalist—meaning the analysts have recognized
it with a Gold, Silver or Bronze Morningstar Analyst Rating after applying
a rigorous evaluation using our Five-Pillar Methodology framework. Morn-
ingstar analysts evaluate funds based on five key pillars—Process, Perfor-
mance, People, Parent and Price—that they believe lead to funds more likely
to outperform their category peers and/or indices over the long term on a
risk-adjusted basis. Analysts consider numeric and qualitative factors, but the
ultimate view on the individual pillars and how they come together is driven
by the analyst’s overall assessment and overseen by an Analyst Ratings Com-
mittee. The approach serves not as a formula but as a robust analytical frame-
work ensuring consistency across Morningstar’s global coverage universe.
Although nominees should have produced strong performance for investors
in the preceding full calendar year, that is far from sufficient qualification unto
itself. Nominees need to have also shown an ability to serve investors well over
longer time periods. Therefore, in addition to performance Morningstar analysts
weigh the quality of management, the strength of the process used to run the
fund and its repeatability, the quality of the parent organization (including how
it treats investors in its funds) and costs. Morningstar’s asset-class teams then
whittle down the list to a group of finalists, and the entire Europe-based analyst
team meets to debate the merits of the finalists in each category. Following
those discussions, analysts vote to determine the winners. The awards winners
will therefore have demonstrated the ability to generate outstanding long-term
returns compared to their peers and/or indices. A strong risk-adjusted profile,
with a process analysts believe is repeatable and applied by a robust team with
a solid sense of stewardship towards investors, are hallmarks to identifying
standout managers.
Institutional Investor “Hedge Fund GP Investor” award: Institutional Investor
15th Annual Hedge Fund Industry Awards: “Hedge Fund GP Investor.” Dyal Cap-
ital Partners.
2017 ANNUAL REPORT NEUBERGER BERMAN | 73
The Best Responsible Investor award goes to the country-based or ASEAN as-
set manager or asset owner that has demonstrated excellence in responsible
investment and ESG reporting. The winner will have proved that they have
adopted best practices and transparency by recognizing the highest stan-
dards in the disclosure of responsible investment activities in their particular
jurisdiction. The winner must also demonstrate a coherent company culture
contributing to its success as a responsible investor.
This material is being issued on a limited basis through various global subsidiar-
ies and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/
disclosure-global-communications for the specific entities and jurisdictional
limitations and restrictions.
The “Neuberger Berman” name and logo and “Neuberger Berman Invest-
ment Advisers LLC” name are registered service marks of Neuberger Berman
Group LLC. The individual fund names in this piece are either service marks or
registered service marks of Neuberger Berman Investment Advisers LLC, an
affiliate of Neuberger Berman BD LLC, distributor, member FINRA.
©2018 Neuberger Berman BD LLC. All rights reserved.
Following a public call for nominations, the editorial staff of Institutional In-
vestor magazine selects award nominees based on how strongly candidates
– both those put forward via the call for nominations and those independent-
ly identified by the editorial staff - meet the criteria for their respective cate-
gories. Once the nominees are publicly announced, the magazine group then
conducts a wide survey of U.S. institutional investors and invites them to vote
for the manager nominees. Hedge fund managers are invited to vote for the
investor nominees. Institutional Investor’s editorial staff analyzes the results
of the voting to determine the winners, who are announced at the annual
awards dinner and ceremony, to be held this year at the Mandarin Oriental
in NYC. Awards referenced do not reflect the experiences of any Neuberger
Berman client and readers should not view such information as represen-
tative of any particular client’s experience or assume that they will have a
similar investment experience as any previous or existing client. Awards are
not indicative of the past or future performance of any Neuberger Berman
product or service.
Asia Asset Management “Best Responsible Investor” award: Asia Asset
Management 2018 Best of the Best Awards: “Taiwan, Best Responsible
Investor.” Neuberger Berman Taiwan (SITE) Limited.
Asia Asset Management’s annual Best of the Best Awards are divided into
three categories: Performance, Country and Regional awards. The Perfor-
mance awards are dedicated to measuring the accomplishments of each
company based on the performance statistics of funds being managed. The
top performer among the submissions received will be awarded. The Country
awards are focused on the comparison of achievements and skill of each
fund management company against other companies from the same country.
To draw out the best from each country, this section will look at the com-
pany’s overall impact in shaping the nation’s asset management sector. The
Regional awards are designed to identify Asia’s finest performers from finan-
cial services companies and institutional investors to service providers, whose
influence and excellence expands beyond borders. These are firms that have
boldly led the way in terms of innovation, service to clients, best practices and
overall expertise in their field.
74 | NEUBERGER BERMAN ANNUAL REPORT 2017
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