A train length or so from Grand Central station, Neuberger Berman’s offices provide good views of Manhattan, and a good multi-faceted view of the Street downtown. Following Roy Neuberger’s own tastes, the offices also offer a large collection of modern American art to soothe the minds of investors, investees and IROs when they come to tell their story.
But the firm’s perspective is one of time as well as space. Its promotional materials stress the experience of its managers, which goes back to times before an ever-rising Dow looked as inevitable as the expansion of the universe. Vice president Les Pollack’s office has mementos of his long career on the Street, including magazine pictures of him riding a bull – several stampedes ago.
In fact he began in the market in February 1958, and moved from brokering to research director before becoming, a quarter of a century ago, an investment manager for individual clients. His change was, he stresses, fully discretionary, which is why eleven years ago he was happy to move to Neuberger Berman, which he today acclaims as the pioneer of fee-based discretionary money management.
Roy Neuberger, Pollack recounts, decided he didn’t want to spend 90 percent of his day on the phone talking to clients. He wanted to spend 10 percent of his time with clients and 90 percent thinking and checking on investments. It worked out well, Pollack admits. ‘I have to say that when I was able to work in that kind of a mode, my results improved tremendously. I’m much better at my business when I don’t have to call people, and my business grew tremendously.’
Doubtless inspired by the aesthetic accouterments of the office, he elaborates, ‘It’s like an artist painting a picture. If the client comes up behind you and pokes you in the back and says, Put a little blue there in the corner, then it doesn’t work out too well.’
Killed by kindness
Pollack says his secret weapon with clients is to kill them with kindness. ‘I have two wonderful women who work with me, and they are really very good at the handholding part. It’s really very important, since what we do in private asset management is 50 percent making money and 50 percent taking care of clients.’ Other groups, representing about half the funds with the firm, deal with institutions. Pollack’s group deals with families and individuals investing $500,000 and up, typically around the $2 mn mark. ‘There is a real need for our services in that area. But people like this don’t really have that many options apart from going to their local stockbroker. They usually do better if they hire a professional – like us.’
It is, of course, a serious responsibility to undertake. In return for a fee the private investors give full discretion to Pollack. ‘What people like me have to do is determine where the client fits in the risk spectrum.
It’s a little more difficult than just saying, Check this box. Some people say they like risk, but in a down market, you find they don’t. Others say they don’t like it, but then you find they really want some exposure on the upside.’ A lot is based on his personal assessment of the client’s temerity since the ‘worst thing I could do would be to put too much risk in someone’s portfolio.’
Give & take
Longevity in the market clearly pays philosophical dividends. And the house’s laissez-faire attitude helps results. ‘Last year, the firm overall did quite well, since our philosophy is high quality and value investing. There were loads of us in high growth who did extremely well until last year, and then last year, we gave some of it back. If you were in value, you did not make as much, but didn’t give back. It’s the world we live in.’
Luckily, most of Pollack’s clients have been with him for the past ten to 20 years, and he claims that ’95 percent of them are strong – they’re used to me and my style. They’ve made enough to know that when it’s down, it’s part of the game.’ For the one or two who pop up right at the low, he smiles and points to the box of tissues beside his desk drawer.
Part of the art of personal money management is undoubtedly knowing how to carve out the appropriate portfolio risk profile for the client to keep those tissues dry. As wholesaler for his retail clients he has about $650 mn in some 30 stocks, mostly US based, and typically does not hold anything with less than $1 bn in sales.
Many clients are no doubt grateful that over the last year or so, part of the house style included this axiom: ‘We don’t do IPOs or venture capital.’ Which is not to say Pollack is cut off from the cutting edge of communications, since his portfolio includes Nokia and AOL Time Warner, for instance.
He tries not to have more than 10 percent of a portfolio in any one stock, nor more than 20 percent in any one industry. ‘I like to diversify enough that I’m not fully dependent on any one stock because stocks can fool you sometimes. I try to balance it out.’ Favored areas include ‘IT; the big retailers, like consumer non-durables; drugs; and financial-related companies. Those are the kind of companies we like.’
Pollack stresses that as well as the 30 or so stocks he holds, ‘My universe includes several thousand that I don’t own.’ To make his selections he uses the firm’s own research department, and then draws on all the Street’s research through First Call. Of course he and his researcher also attend a constant stream of presentations by listed companies wanting to get some of the firm’s billions in their stock.
Pollack comments laconically but appreciatively on the benefits of a Manhattan location. ‘At least here we get to meet the management without having to travel to Kalamazoo or Pocomo – there’s always a full plane of people coming through.’ He adds, ‘Companies like us, we’re known as good stockholders – we’re not in and out at the first rumor or hint of bad news. They know we’re professionals.’
Happy marriage
So what does he listen for when companies visit? ‘As much as they can say. We like to know what’s important, what directions they’re going in. We like to get a feeling for them – it’s nice to see them in the flesh, and get a feeling for what they are doing.’ And the feeling from face-to-face meetings is important, he stresses.
There are lots of stocks out there that he does not hold, however. ‘If the numbers are good and management gives us favorable vibes, that’s a good combination. With the type of companies I invest in, I like to be in them for five to ten years. So I have to have very good feelings about them – I’m sort of married to them for a while.’
However, there is more to life in personal fund management than research. From the vantage point of over four decades of experience, Pollack concludes, ‘Most of Wall Street has access to the same set of facts, especially with First Call. What makes success for a money manager is what you do with that information, how good your judgment is and how you fit it in the big picture, long and short term.’
History
Roy Neuberger founded Neuberger Berman in 1939 to manage funds for affluent individuals, and in 1950 the firm was one of the first to offer ‘no-load’ mutual funds. Its 1,200 staff in their 16 offices across the US now manage almost $60 bn in assets, held in both mutual funds and separately managed accounts for individuals, families and institutions.
The firm now has 18 no-load mutual, six fixed income and twelve equity funds, including growth, value and blended investment styles across all capitalization ranges, as well as technology, international and socially responsible portfolios.
In the private asset management group, some 80 money managers oversee personalized investment portfolios for individuals.
The house style is free-ranging, allowing money managers to develop their own portfolios and styles under the substantial umbrella of the firm’s collective services. Overall, the style is a little conservative, stressing fundamentals, which means that if clients didn’t hit the stratosphere during the dot-com IPO frenzy, neither did they burn up on re-entry.
One of Nokia’s IROs, Bill Seymour, says he’s seen a lot of Neuberger Berman recently – and he’s impressed. He says they weren’t just interested in the fundamental numbers – although they paid a great deal of attention to them – but they were also interested in strategy and how Nokia management thought.
Taking a longer view is clearly part of the house style – perhaps all the more so since the fund management firm went public on NYSE in 1999.
With some 70 partners, the company had remained a traditional partnership until 1996 when it became a limited liability company. Shortly after flotation the stock was down to $25. As we went to print, it was over $65 after a successful secondary offering in July that raised over $267 mn. The firm is confident it will meet analyst expectations for the year.
However, the basic ethos of the firm is unchanged: to recruit talented people and let them do their own thing using the common facilities as well as the weight and good name of the company.
Setting the bar
Chief investment officer Michael Kassin spent ten years with Fidelity Investments before moving to Neuberger Berman eleven years ago. He cheerfully admits that he does not have a decisive role in the stock-picking process. ‘We have over 100 investment professionals here and my role is largely people-oriented,’ he explains. ‘Like a sports team’s general manager, I try to make sure that we have the right people in the right spot and we are outfitting them properly, making them glad to come to work, and ensuring that they have good research that is meaningful for them.’
Kassin believes Neuberger’s strength lies in ‘having a number of successful styles of management under one roof with shared resources.’ For example, Kassin says he would define Les Pollack as a large-cap growth manager, but that does not mean he has to work from an approved list. On the contrary, ‘He can follow his own investment head. We have others who are much more value-oriented, or who are small-cap or large-cap managers.’
Kassin carefully prefaces his comments with a corporate health warning: ‘I don’t speak for the company, since I’m not sure that you could get unanimity here about whether the sun was going to come up tomorrow morning.’
Though others at Neuberger may disagree, Kassin believes the arrival of the SEC’s Regulation Fair Disclosure to be a good thing. ‘Despite the fears when it was introduced, on balance I don’t think it’s done much to interfere with our analysis of companies and industries. If you are a knowledgeable analyst or portfolio manager, then most companies are happy to spend time with you to help you understand their businesses better.’
As for the quality of corporate information, ‘I’ve heard analysts say that companies not wanting to give guidance are stupid or are holding out, but in most cases, they legitimately don’t know. We’re on the edge of economic recession – and may even be in one – and in all honesty, all these companies that pretended their visibility was great a year ago have learned the hard way that it wasn’t.’
In fact, Kassin thinks the investment community should share some of the blame for being overly wishful. ‘The average company CEO wants to say, My sales can grow around 10 percent and my earnings 15 percent a year. But the reality is that on average they can’t. The economy simply doesn’t grow fast enough. They’re not deliberately trying to delude the investment community. They’re just setting the bar too high. And although they do it themselves, we help them do it – when companies come out with realistic, lower assumptions, the investment community is likely to accuse them of setting the bar too low, so they can just step right over it.’
