Neuberger to reduce GP relationships in PE fund of funds

The firm's private equity fund of funds will maintain its relationships with the GPs with the strongest performance and the best governance. The firm will not cut its commitment to the asset class.

Neuberger Berman’s private equity fund of funds business is reducing the number of relationships it has with managers, sticking with GPs who deliver the best performance but also meet high levels of governance and transparency standards. The firm is not cutting its commitment to the asset class.

Anthony Tutrone, who runs the alternative investments division at Neuberger Berman, said at a conference in New York the firm has always evaluated and vetted its relationships with fund managers. The difference this time, he said, is “the number of funds we will not be [re-upping with] going forward overall will be at a much higher level than it has been historically”.

The most important factor in an LP/GP relationship for Neuberger Berman is getting good returns, Tutrone

It takes a long time for a private equity firm to die. There's not a high mortality rate in the industry, but there is a high morbidity rate.

Anthony Tutrone

said, but transparency and good governance practices have also become important since the financial downturn.

“We’ve found enough firms out there who can deliver the returns we’re looking for,” he said. “One of the lessons we learned [in the downturn], is that we want openness … transparency, because our clients expect that from us as a fund of funds.”

Tutrone spoke on a panel about limited partner issues at a Dow Jones conference Wednesday. On the sidelines, Tutrone said the firm will take a tough look at managers whose funds’ suffered in the downturn, or have not acknowledged the changing LP-GP dynamic in the industry. Firms that have not dealt with issues like the need to give LPs more detailed information on a timelier basis were characterised by Tutrone as, “the walking dead”.

“It takes a long time for a private equity firm to die,” Tutrone said. “There’s not a high mortality rate in the industry, but there is a high morbidity rate.”

Neuberger Berman's alternatives division, called NB Alternatives, has raised 18 funds of funds vehicles, including its most recent $1.5 billion fund that closed in 2007. NB Alternatives had $14 billion of assets under management as of 31 December, 2009. The division also runs private equity secondaries and co-investments.

Neuberger Berman, with more than $170 billion of assets under management, spun out of the estate of bankrupt Lehman Brothers last spring after a management group won an auction for the business, beating out a $2.15 billion bid from Bain Capital and Hellman & Friedman.