Neuberger Berman launches long-short equity fund for portfolio manager Steve Eisman

Neuberger Berman, a private, independent, employee-owned investment manager, has launched the Neuberger Berman Absolute Alpha Fund, a long-short equity portfolio managed by renowned investor Steve Eisman and his team.

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The strategy launches as a sub-fund of the firm’s Irish-domiciled UCITS umbrella as well as the first launch in a new UK fund range. The Neuberger Berman Absolute Alpha Fund is a fundamentally-driven long/short equity strategy, with the management team seeking to generate alpha on both the long and short side of the portfolio.

Alongside co-managers Michael Cohen and Dana Cohen, Eisman’s team will seek to exploit opportunities – both positive and negative – created by sector, company or management disruption and change. The team also employs a four-step analytical and portfolio construction process. This is headlined by a financial system overlay, evaluating key metrics such as credit spreads and credit quality, which the team believes is integral in identifying early indicators of broad economic stress.

The Neuberger Berman Absolute Alpha Fund does not aim to be consistently market neutral and can take on a positive or negative directional bias through its net exposure. This is expected to be between 65% net long to -20% net short.

The fund is based on an existing equity long/short strategy managed by Eisman, which was launched on 1 November 2016. Since inception to end-December 2018, the strategy delivered a net return of 11.42%, in USD terms, against just 1.27% for the HFRX Equity Hedge Index.[1]

As described in Michael Lewis’ bestseller The Big Short, Eisman was famously on the right side of the market meltdown more than a decade ago, and says the financial crisis was caused by four interlocking trends – excessive leverage, a blow-up in sub-prime mortgages, sizable ownership of sub-prime securitisations by systemically-important organisations, as well as derivatives. While these issues are not evident in the system today, Eisman does believe there are lessons to be learned.

“The first lesson to remember is that paradigms can last a long time, even when they are wrong. Wall Street thought it knew how to manage its own risk and therefore increased leverage continuously. It took a crisis to prove the paradigm was wrong,” Eisman explains.

“Secondly, incentives trump ethics almost every time. Mortgage originators and securitisation departments were all incentivised on volume, not quality. They kept originating until credit quality imploded. Finally, Regulation matters and changes in regulation can matter even more.”

“How do we apply these lessons to today? We believe it is important to reassess compensation structures, with a focus on long-term return-on-equity over volume. It is also crucial to understand underlying risks.”

In addition to the wealth of expertise on the team, the portfolio managers leverage the insights and resources of Neuberger Berman’s global equity research department, which consists of 41 investment professionals. This experienced department, which undertakes upwards of 2000 company meetings per year, has a broad and extensive coverage universe, helping provide the portfolio managers with a diverse range of ideas to be utilised within the strategy.

Dik van Lomwel, Head of EMEA and Latin America at Neuberger Berman, comments: “The launch of the new Neuberger Berman Absolute Alpha Fund is clear evidence of our unique approach and our commitment to providing innovative investment thinking and differentiated proposition to our clients. We are extremely pleased to have investors of the calibre of Steve at Neuberger Berman and are thrilled to be able to offer his unique proposition to our client base in Europe, UK, Asia and Latin America.”

Next Finance March 2019

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[1] As at 31/12/2018. Please note: past performance is not a reliable indicator of future results.




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