Mutual Fund Losses Could Be Massive

New York, NYUnder most circumstances, the sale of a portion of a business for $3 billion would be considered an enormous sum—unless, of course, you are talking about the sale of Neuberger Berman. That's because Neuberger Berman's value was previously estimated at somewhere between $7 billion and $13 billion, depending on who you talked to. So, a sale for $3 billion is a bargain basement price, and that leaves people with Neuberger mutual funds at risk for huge losses.

Technically, Neuberger Berman has not yet been sold for $3 billion. In fact, the highest bid in the auction so far is from Bain Capital and Hellman & Friedman's joint offer of $2.1 billion. Keep in mind, that $2.1 billion is not just for Neuberger Berman, it's for the whole Lehman investment management division, which includes Neuberger Berman. However, some other companies have come out of the woodwork and may put in their own offers. Companies listed by the New York Post as potential bidders include Carlyle Group, Silver Lake and State Street. Still, it is not expected that the sale of Lehman's investment management division will exceed $3 billion.

Even if you believe that Neuberger Berman was worth the low estimates of $7 billion, $2.1 billion is still a massive loss in value and investors must be concerned about where that approximately $5 billion (or more) has gone. Whose pockets does that money come out of? Usually, it comes out of the pockets of the investors, who put their money in Neuberger funds in good faith, believing that the funds were safe and stable. Too late, they learned that they would likely be losing a lot of their investments.

So now investors are left asking whether or not asset managers acted in the investors' best interests. As fiduciaries, it is their duty to act not in the best interests of the company but in the best interests of their investors. However, with Lehman Brothers' value in a sharp decline, it is possible that company officials made poor decisions in an attempt to protect their company. That's not to say that this is definitely the situation with Neuberger Berman, but for a firm to have lost so much value and to be on the chopping block for $2.1 billion indicates that there may have been mismanagement somewhere along the line.

It would be a shame if, once again, investors are left holding the bag for the poor decisions of the asset managers.

Neuberger Berman is owned by Lehman Brothers. It will be sold in an auction, with new bids for the firm due by December 1. Shortly after December 1, a winner to the auction will be announced and mutual fund investors will have a better idea of where they sit. Unfortunately, it is probably still nowhere near where they sat this past summer, when things looked a lot better for Neuberger Berman and Lehman Brothers.