Neuberger Closes First Fund of Funds Since Spin-Out

The Neuberger Berman Group, the money management company once owned by Lehman Brothers, announced a $720 million final close for its NB Crossroads 2010 Fund, the firm’s first fund of funds since the money management firm was spun out and sold to its employees in 2008.

The new fund, which invests in private equity funds, secondary investments and co-investments, initially had a $1 billion target, according to a 2009 story in Buyouts. Since the fund’s first close in early 2010, the fund has committed to 19 private equity funds, has bought secondary interests in 15 others and made 7 co-investments.

According to John Buser, a managing director in Neuberger Berman’s funds-of-funds group, the fund is already about 50 percent invested. Although private equity firms usually start raising new pools when their current funds are 60 percent to 70 percent invested, Buser declined to say whether his firm was gearing up for its next Crossroads fund.

Primary fund investments make up about 70 percent of the new fund’s overall investments. Co-investments and secondary stakes make up the rest. As far as fund types, investments are spread among mid-cap buyouts, large-cap buyouts, special situations and a pool that combines venture and growth capital.

“Investors have become more sophisticated about funds of funds, and they pay particular attention to the quality of a firm’s due diligence,” said Buser. “We bring a very stable team, and a very large team relative to the assets that we have under management.”

The firm also lauds its deep private equity relationships. “All of the funds we have invested in were top-decile funds,” said Buser. “A number of them were dramatically oversubscribed. The key to getting in is identifying funds well before they come to market.”

Investors include insurance companies and public pension funds, and including investors in Europe, Japan and the U.S. Notable investors in Neuberger Berman’s earlier funds include the Connecticut Retirement Plans and Trust Funds, Indiana Public Employees’ Retirement Fund and the State of New Jersey Division of Investment.

The firm’s previous fund of funds, the Lehman Crossroads XVIII LP, closed in 2006 having raised $1.5 billion. Notably, from 1987 to 2002, the firm built a strong-performing $640 million portfolio containing more than 75 venture investments for the Connecticut pension, including commitments to Accel Partners and Matrix Partners, according to Dow Jones. That portfolio has returned a 2.6x investment multiple and a 20.2 percent IRR though March 31, 2011, according to data from Connecticut’s treasury department.

Some of the funds that Neuberger Berman has backed in the past include American Capital II LP; Apollo Investment Fund V LP; Clayton Dubilier & Rice Fund VII LP, J.C. Flowers II LP, KKR 2006 Fund, KKR Millennium Fund and Thomas H. Lee Equity Fund VI LP.

The funds-of-funds group refrains from investing in the firm’s primary fund offerings, according to Buser, saying that doing so would constitute a conflict of interest for its funds-of-funds investors.

Neuberger Berman’s private equity group traces its roots to the Crossroads Group, a funds-of-funds firm founded in 1987 and which was later sold to Lehman Brothers. The business was grouped under Neuberger Berman, which was spun off soon after Lehman’s bankruptcy in 2008. The Dallas-based unit currently has committed approximately $12 billion to private equity funds since its founding. Overall, Neuberger Berman manages $183 billion in total assets.