On a recent visit to Asia, George Walker, chairman and chief executive of Neuberger Berman, spoke to AsianInvestor about his ambitions in the region. These include a particular focus on China, Korea and alternative assets.
Sources say the New York-based asset manager is looking to continue a strategy it had in place for many years of buying minority (around 20%) stakes in hedge funds, such as DE Shaw, GLG Partners (now part of Man Group), Ospraie Management and Spinnaker Capital.
However, whereas the manager was previously using proprietary capital, it is now making these investments in partnership with clients and is contemplating investments in Asian hedge funds, says one source.
Walker declined to comment specifically on any firm plans and would only say: “In view of the incoming Basel III capital-adequacy rules and Volcker Rule [which make it more difficult for banks to make proprietary investments in alternative assets], banks are less likely to make investments in hedge funds, leaving more opportunities for other firms.”
Neuberger manages $3.7 billion in fund-of-hedge-fund (FoHF) assets globally, with about 10% in Asia-focused funds. The FoHF business is optimistic about opportunities in Asia, says Walker, and regularly considers investments in funds that are relatively early in their investment lives.
There has been talk of Neuberger carrying out an initial public offering, but Walker says there are no immediate plans to that effect. “We’re very happy to be privately owned,” he says. “Any discussion of an IPO is extraordinarily premature at this point.” The employees own around 52% of the firm and would like to increase that stake and are discussing how the minority holders might wish to exit their holdings over time, he adds.
Asked about Neuberger’s commitment to Asia, Walker says it’s the firm’s existing clients that are pushing it to invest in Asia, rather than management simply looking at the region as one where money can be made. The manager has been overweight Asia for some time, and he doesn’t see that changing.
For one thing, Neuberger is in the process of applying for a qualified foreign institutional investor licence in China, which it’s likely to use chiefly for equity investments. And having made progress on winning institutional mandates in Korea in recent months, the firm is considering hiring further investment staff to cover the market either from Seoul or elsewhere, and a rep office there may be on the cards.
But is Walker concerned about the overwhelming level of interest in and flows to emerging markets and particularly Asia raising issues such as pro-cyclicality and capacity?
These are issues to bear in mind, he admits, but given that the firm is a bottom-up stock-picker, it can change its investment allocation quickly when the need arises. Moreover, capacity could arise as a challenge once Neuberger’s emerging-market equity AUM rises to $5 billion or so from its current $300 million, he adds, but that won’t be for three-to-five years.
Meanwhile, to what extent is Neuberger seeing interest in US assets from its Asian clients? Institutions in the region – particularly the large and important groups such as sovereign wealth funds – are showing more demand in US investments, says Walker. This is not because US assets are necessarily more interesting or have more potential than Chinese assets, he adds, but because they’re realising the need to diversify their portfolios.