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Case Study:
Solving for Global Macro
Market Impact
THE SITUATION
A west coast community college system
was seeking to deploy new pension assets.
Focused on its need to meet near-term
obligations while investing for growth, the
plan recognized the challenges of volatile,
sensitive markets and the implicit need to
diversify. The plan participants included
retired educators, administrators and staff.
The outside consultant and investment
committee, sought to develop an investment
program that utilizes a multi-asset
class solution as the cornerstone of
its approach.
THE SOLUTION
Working closely with the investment
committee, Neuberger Berman developed
a multi-strategy proposal investing across
six strategies, including U.S. and global
equities, fixed income and real estate
portfolios. The investment committee
was, from the outset, fully engaged with
Neuberger Berman’s client management
team in developing the strategic asset
allocation mix and risk/reward parameters
for the proposal. Members of the
Neuberger Berman Investment Strategy
and Risk department worked with the
investment committee to help them gain
a better understanding of the different
asset classes and how they may impact
the portfolio.
THE PARTNERSHIP
The investment committee selected
Neuberger Berman to manage the
proposed multi-strategy solution. In
addition Neuberger Berman serves as a
value-added resource for global macroeconomic
information and as a fount
of new investment ideas. This included
providing information that was utilized in
the development of a socially responsive
investment policy. Our client and portfolio
teams meet with the investment committee
each month to review results and
to discuss individual strategies and the
overarching allocation of the portfolio
in light of the current economic and
market environment. n
neuberger berman annual review 2011
Lessons Learned from
2011’s Market Volatility
What lessons did you learn from
2011 and how are you applying
them today to the portfolios
you manage?
The irony of 2011 was that, while market
indices were more volatile than at any
time since the Lehman bankruptcy,
individual stocks moved in lockstep. The
reason is clear: macroeconomic risks,
like the insolvency of European governments
and banks, so dwarfed the risk/
reward characteristics of most stocks
that investors tended to throw the entire
equity asset class into one of two buckets
– more risky and less risky. When global
risks were perceived as rising or falling,
investors would move money from one
bucket to the other.
The lesson of 2011 was that even the
most committed bottom-up stock analysts
must consider the macroeconomic
backdrop and admit that, under certain
unusual conditions, the environment
can trump the pros and cons of most
individual stocks. We reduced risk in our
portfolios in May of 2011, when it seemed
clear that the market was ignoring the
looming insolvency of European banks
and the consequent deceleration of economic
growth; and we reverted to a more
normal risk profile when the European
Central Bank instituted the Long-Term
Refinancing Operation (LTRO), which we
saw as the European equivalent of the
Fed’s quantitative easing programs.
With John J. Barker and Daniel H. Rosenblatt
Managing Directors and Portfolio Managers
Large Cap Disciplined Growth
Since it appears volatility is here
to stay, what opportunities and
challenges do you see in the
coming year for your disciplined
growth investing style?
Since late in the fourth quarter of 2011,
the high correlations among stocks have
declined as the U.S. economy has shown
surprising strength and the LTRO has
provided a respite to European banks.
The result is that individual company
fundamentals once again matter more
than macro trends. This is a change that
stockpickers like us welcome. Even in
2011, some companies in the large-cap
world managed to stand out and escape
the uniform treatment accorded most
stocks. But the lesson of 2011 remains:
In a volatile global economy, even
stockpickers must on occasion recognize
the power of economic tsunamis.
Daniel H. Rosenblatt John J. Barker