Easy Come, Easy Go: Neuberger Berman OKs Repurchase of Recent IPO Shares

The asset manager went public barely more than two weeks ago.
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Neuberger Berman

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, which netted $90 million in an initial public offering just over two weeks ago, said Monday it is committing up to $50 million to buy back some of its struggling stock.

Industry observers can't recall a buyback this soon after an IPO.

"We didn't go public with the idea of doing this. It's just an insurance policy, and you can read into that however you'd like," says Jeffrey Lane, the asset management firm's chief administrative officer.

The offering, underwritten by powerhouse

Goldman Sachs

, has gotten a tepid reaction from the start. Shares were priced at 32 for the Oct. 13 IPO and closed at 28 11/16 after the first day of trading. They closed as low as 24 on Oct. 21 before recovering somewhat last week. But investors were apparently unimpressed with the buyback announcement, sending shares down about 3% to 28 1/16 at midday Monday.

The buyback announcement came at the same time that the company announced its third-quarter net earnings were $32.5 million, compared with pro-forma net income of $36.7 million in the third quarter of last year.

"They said the reason for the IPO was to expand their product line. ... It raises the question of whether or not they're really going to expand their mutual funds. This announcement muddies the waters," says Tom Goggins, portfolio co-manager of the

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John Hancock Financial Industries fund. Goggins would not say whether or not his fund owns the stock.

When an IPO dips and stays below its offering price, investors often assume the stock's underwriter has stopped supporting the issue and has hit the exits, says Kian Ghazi, a senior analyst with New York's

Midtown Research Group

. Goldman Sachs didn't return phone calls for comment Monday.

Bear Stearns

, an underwriter of the issue, initiated coverage with a buy rating on Monday. A company representative didn't return a phone call asking for comment.

"Typically, a company doesn't go public without strong fundamentals or a good environment for its sector. That way they can have a strong launch and a couple of good earnings reports," Ghazi says. Neuberger Berman cancelled an IPO planned for last fall, citing an unfavorable market environment.

The market's cool reception might have a lot to do with Neuberger Berman's shrinking mutual fund and institutional-asset base, a result of the value shop's weak performance in a growth-biased market. Of the company's three investment-management divisions, only private asset management boasts growing assets. According to the company's pre-IPO filing, institutional and mutual fund assets dropped by 12.2% between June 1998 and June 1999. The firm has $51 billion under management in all three divisions.

Founded more than 60 years ago, the firm's partners have largely built its reputation by relying on stodgy value-investment styles. Over the past few years, this has led to poor performance. At the close of the third quarter, 16 of the firm's 20 mutual funds with three-year records were underperforming the average in their categories, as calculated by Chicago fund-tracker



"To truly succeed, you need performance. More than 75% of the money flowing into funds goes to those with four- or five-star ratings from Morningstar," says Robert Shelton, portfolio manager of the


AIM Global Financial Services fund. (Shelton did not disclose whether or not the stock is in his fund's portfolio.) But the only Neuberger Berman fund with a high Morningstar rating is the four-star


Limited Maturity Bond fund.

Given the firm's lack of style diversification, the cash raised in the IPO was expected to go toward expanding the firm's product line into more growth-oriented funds.

"Our first choice is still to use the cash flow to grow our business. We're just going to be opportunistic and do what makes sense for long-term shareholder value," says Neuberger Berman's Lane.

While shareholders could eventually benefit from the company's support of its own stock, Midtown's Ghazi notes that the company did not commit itself to a timetable for the buyback program. "It's a good sign, but some repurchase plans are announced and never intended to be executed," he says.

Demographics and the growing demand for retirement investments should help asset managers over the long term, but the near term seems less sure.

"They say they want to grow their fund business, but that's very competitive. They might just stick with their core competency, which is private money management," says Hancock's Goggins.

AIM's Shelton says the only clear cure-all in the present is better performance, "Right now, investors are probably saying, 'We just had this great bull market, where were you?' "

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