On May 9, 2023, the Distinguished Speaker Series (DSS) Advisory Group hosted George Walker, Chairman and CEO of Neuberger Berman, at the University Club of Chicago. Our meeting venue played an important role in Mr. Walker’s personal story. His father lived in the same building years ago. The elder Walker met a bank teller in Chicago, and the two would become Walker’s parents. The young family relocated to St Louis, where George would become a life-long Cardinals fan. Luckily, Mr. Walker’s revelation of his sporting allegiance did not put a damper on the atmosphere of the event.
Prior to Neuberger Berman re-emerging as an independent firm in 2009, George was Global Head of the Investment Management Division at Neuberger Berman’s former corporate parent, Lehman Brothers. Previously, George spent 14 years at Goldman Sachs where he was a partner and a member of the firm’s Partnership Committee.
The format of this event was Q&A, moderated by the DSS AG’s Arthur Olunwa, CFA.Olunwa opened the discussion by asking Walker to compare today’s banking crisis to that of 15 years ago. Walker said the two times are “totally different.” In 2008, in the midst of the Global Financial Crisis (GFC), systemic collapse loomed, with AIG, Goldman Sachs, Morgan Stanley and others on the brink of failure, Walker explained. Today’s situation involves a few banks (which are much smaller than the institutions that were in jeopardy during the GFC) that made bad banking decisions and for which regulatory oversight was lacking. A new wrinkle today is technology, which intensified deposit flight from some banks in March 2023.
Walker explained that Neuberger Berman sees an opportunity to capitalize on market dislocations. Just today, May 9, Neuberger Berman announced the hiring of a former SVB executive as Chief Investment Officer for Private Wealth. Furthermore, Walker believes his company can step in as an alternative for bank lending, should banks not have the capacity or willingness to meet loan demand. And he believes his fixed income investment teams will find select opportunities to buy credit on the cheap. Later in the conversation, Walker identified Real Estate Debt as a particularly interesting opportunity. Your reporter assumes Walker was referring to both direct lending and buying outstanding debt.
Mr. Walker recently returned from China, where Neuberger Berman just launched a local fixed income fund, with ambitions to enter the Equity sector soon. While his company is investing capital in local operations in the People’s Republic of China (PRC), seemingly, the trip made Mr. Walker more cautious about the country. . He sees the geopolitical tensions between the USA and the PRC more likely to worsen than to improve in the near-term. He left the country believing that President Xi is more intent on reunification with Taiwan than Walker had understood before his trip.
Walker commented that the uncertainties of investing in China will deter US Private Equity investors from committing capital to the country. The investment horizon for private equity is too long, given the uncertainties, which originate in the PRC as well as in the US (for US investors). American private equity investors in Technology companies may learn, for example, that their portfolio companies are added to restricted lists, as the US government seeks to limit capital flows to certain sectors in China. Or, problems could come from the PRC, as investors in tutoring and private education companies experienced in recent years.
The topic of Crypto currency surfaced twice in the discussion. Neuberger Berman first became involved in Crypto as it wrote puts on bitcoin for an Ivy League endowment. The firm learned that the premiums received on the puts were woefully insufficient to protect against a decline of Bitcoin from 66,000 to 16,000. Walker seems to have cooled on Cryptocurrency, though, citing it as the answer to Olunwa’s question about what was the craziest new strategy the company has ever pursued.
Olunwa asked Walker to comment on the investment management industry. Walker described a challenging road ahead for active management, with his view that passive strategies would continue to gain a point of market share each year. Walker anticipates increased merger activity, as mid-sized firms find it more difficult to continue under their current model. All is not lost for any company with a strong culture and decent performance; those managers will survive and even thrive.
Walker’s insightful answers to Olunwa’s questions intrigued the attendees. As the event concluded, the only disappointment was – there was not enough time to ask Walker more questions on geopolitics, current market conditions, and the investment management industry.