The attached article from Barron’s,
“Adding Gains, Curbing Pains” profiled Charles Kantor, Portfolio Manager of the Neuberger Berman Long Short Fund Please note that whilst the attached article (which is a reprint) relates to a specific US fund which is NOT generally available to investors outside of the United States, the portfolio manager Charles Kantor (and his team) manages the overall strategy for long short equity funds, including a similar UCITS fund that is available to investors in several jurisdictions outside of the United States. A copy of the latest fact sheet for the UCITS fund can be found on the web at http://www.nb.com/_layouts/www/transfer.aspx?URL=/Products/us-long-short-fund.aspx.
FOR PROFESSIONAL CLIENT USE ONLY.
% THE DOW JONES BUSINESS AND FINANCIAL WEEKLY
www.barrons.com
Talking With Charles Kantor MARCH 16, 2015
Portfolio Manager
Talking With Neuberger Berman Long Short Fund Charles Kantor
Adding Gain Adding Gains, Curbing Pain Portfolio Manager Neuberger Berman Long Short Fund
Curbing Pains by Sarah Max
by Sarah Max The attached article from Barron’s,
INVESTING IS ALL ABOUT BALANCING RISK AND REWA
“Adding Gains, Curbing Pains”
it’s only fitting that balancing Charles Kantor Investing is all about risk andconsidered it’s only fitting when that Charles Kantor considered thatAfrica for equation he left his native South reward, so it’s only fitting that Charles equation when he left his native South Africa for New City “I would either findhe work or ru Kantor that equation when YorkYork City considered in 1992.in“I1992. would either find work or run out ofhis the $2,000 I had andtogo back toYork Cape of the $2,000 I hadSouth and goAfrica back Cape Town,” says Town, left native for New Kantor, was fresh outfresh ofeither the out University ofUniversity Cape Kantor, who was of the of City inwho 1992. “I would find work or Town’s business commerce program. program. Town’s business commerce runAfter outpounding of the $2,000 I hadheand goa back to the pavement, landed consulting After pounding the pavement, hefresh landed a cons Cape says Kantor, waspioneered positionTown,” with Stern Stewart & Co., awho firm that position with Stern Stewart &ofCo., abusifirm that pion the concept economic value, aCape measure a company’s out of theofUniversity of Town’s truethe profits. And, inoftime, he parlayed that concept economic value, a experience measure of a com ness commerce program. Please note that whilst the attached article (which is a reprint) relates into to ainvesting. specific US fund true profits. And, inpavement, time, he parlayed that expe After pounding thelater, he landed More than two decades Kantor’s early observawhich is NOT generally available to investors outside of the United States, ations the portfolio manager into investing. about howposition companieswith allocate capital and reward consulting Stern Stewart & than two decadesthe Kantor’s performance influence his decisions aslater, manager of the Charles Kantor (and his team) manages the overall strategy for longCo., short equity funds, a More firm that pioneered concept of early ob $3.3 tions billion Neuberger Berman Long Short fund (ticker: about how companies capital and r economic a measure of up aallocate company’s including a similar UCITS fund that is available to investors in several jurisdictions outside ofthe fundhis NLSAX). Asvalue, of Tuesday, was an average of performance influence decisions as manager true in time, he parlayed that 8.7% aprofits. year sinceAnd, its late-2011 inception, versus 5.7% for the United States. A copy of the latest fact sheet for the UCITS fund canexperience be found on the web $3.3 billion Neuberger Berman Long Short fund ( its benchmark,into the HFRX Equity Hedge Index. Moreinvesting. Asone ofofTuesday, the fundratios—a was up an aver over,NLSAX). the fund has the highest Sharpe at http://www.nb.com/_layouts/www/transfer.aspx?URL=/Products/us-long-short-fund.aspx. More than two decades later, Kantor’s measure returns—in its inception, Morningstarversus 5.7 8.7%ofa risk-adjusted year since its late-2011 early observations long-short category. Withabout a ratio how of 1.92companies for the three its benchmark, the HFRX Equity Hedge Index. years endedcapital on Jan. 31, the reward fund ranksperformance in the top 1% of allocate and over, the fund has one of the highest Sharpe rat all equity and his alternative mutual funds by this measure. influence decisions as manager of Though his mutual fund just passed its three-year measure of risk-adjusted returns—in its Mornin the $3.3 billion Berman Long mark, Kantor has category. runNeuberger a long/short strategy since long-short With a ratio of 2008. 1.92 for the Short fundcrisis (ticker:end NLSAX). As of TuesThe financial Neuberger’s parent years endeddidn’t on Jan.well 31,forthe fund ranks in the top company the time, Lehman Brothers. But Neuberger day, theat fund was up an average of 8.7% all equity alternative mutualbuyout—as funds by this me survived—it wentand private in a management adidyear since itshis late-2011 inception, versus Kantor’s strategy. “That trackfund record frompassed 2008 to its three Though mutual just Rising volatility and 5.7% benchmark, the HFRX end mark, of for 2011its provided the basis for taking our Equity approach Kantor has run a long/short strategy since dispersion among and launching it asMoreover, a mutual fund,” says Kantor, whose Hedge Index. the fund has one The financial crisis didn’t end well for Neuberger’s p equities’ performances group ishighest one of about 40 autonomous investment teamsofat of the Sharpe ratios — a measure company at the time, Lehman Brothers. But Neub Neuberger Berman. “It’s the same strategy, same team, mean more chances to risk-adjusted returns — in itsinMorningstar and survived—it same opportunity set.” private went a management buyo bet against individual long-short category. With acontinued ratiotrack ofon 1.92 for That opportunity set page 26 from 2 did Kantor’s strategy. “That record stocks, Kantor says. Rising volatility and the end three ended onthe Jan. 31, for the taking fund our app of years 2011 provided basis dispersion among ranks the top 1% of aallmutual equityfund,” and alterandinlaunching it as says Kantor, native mutual funds by this measure. equities’ performances group is one of about 40 autonomous investment tea Though his Berman. mutual fund passed its Neuberger “It’s just the same strategy, same mean more chances to three-year mark, Kantor set.” has run a long/ and same opportunity bet against individual short strategy since 2008. Theset financial criThat opportunity continued on pa stocks, Kantor says. sis didn’t end well for Neuberger’s parent company at the time, Lehman Brothers. INVESTING IS ALL ABOUT BALANCING RISK AND REWARD, SO
Jordan Hollender for Barron’s
profiled Charles Kantor, Portfolio Manager of the Neuberger Berman Long Short Fund
FOR PROFESSIONAL CLIENT USE ONLY.
(over p lease)
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tility and dispersion among stocks’ perforKantor believes that Markit has tremenmances equate to greater opportunities to dous opportunity to use its balance sheet to bet against individual stocks. “We’re short- create value, whether through buybacks or % of ing things that look more expensive than acquisitions. “If they can execute on what Top 10 Long Equity Ticker Portfolio* their peers and face competitive threats,” we think they can, the stock is worth $45 to Holdings says Kantor. $50 three to four years out,” he says. Zimmer Holdings ZMH 2.7% One such stock is Consolidated Edison Growth stocks tend to be asset-light, Enbridge ENB 2.5 (ED), which Kantor began shorting last but securities in the total-return bucket, Brookfield Infra Part BIP 2.4 March, following a fatal natural-gas explo- recently about 35% of the portfolio, tend PVH PVH 2.2 sion in New York City’s East Harlem. The to be capital-intensive, with high barriers DaVita Healthcare Part DVA 2.0 stock, which was trading at about $55 a to entry. Delta Air Lines DAL 1.9 share prior to the explosion, didn’t suffer Take Enbridge (ENB), the largest Home Depot HD 1.8 after the event and recently was trading North American player in energy transabove $60. But Kantor doesn’t think Con portation and distribution. The stock has Markit MRKT 1.6 Ed is out of the woods. “If they’re found re- suffered with other energy names, but PetSmart PETM** 1.5 sponsible, that will put them in the penalty Kantor thinks that investors are being Visa V 1.4 box with regulators,” he says, noting that shortsighted. Top 5 Short Equity Holdings similar tragedies have resulted in years of Enbridge, he says, is a “long-duration Sally Beauty Holdings SBH -0.57 repercussions for other utilities, such as asset with a flexible balance sheet,” and Halliburton HAL -0.55 PG&E (PCG) in California. its plans to transfer its $17 billion CanadiConsolidated Edison ED -0.54 On the long side, Kantor puts stocks an-liquids-pipelines business to its CanaCaterpillar CAT -0.53 into one of three buckets — capital growth, dian affiliate income fund could boost its CGI Group GIB -0.53 total return, and opportunistic. payout, which recently was producing a 3% *As of 12/31/14. ** Private as of 3/11/15. Source: Morningstar Roughly half of the fund is in growth yield. names, which he defines as those with high The remaining assets are opportunistic But Neuberger survived — it went private returns on capital. “I think of them as con— stocks that are in flux either because in a management buyout — as did Kantor’s strained by their income sheets, not their of changes in a company or within its instrategy. “That track record from 2008 to balance sheets,” he says. end of 2011 provided the basis for taking That was Kantor’s thinking when he dustry. Such is the case with PVH (PVH), our approach and launching it as a mutual purchased shares of Markit (MRKT) fol- which owns and markets a portfolio of lifefund,” says Kantor, whose group is one of lowing its June 2014 initial public offering. style brands, including Tommy Hilfiger about 40 autonomous investment teams at The company provides data, valuation, and Calvin Klein. Kantor’s team bought Neuberger Berman. “It’s the same strat- trade-processing, and other services to the stock in June 2013, soon after PVH egy, same team, and same opportunity set.” such entities as banks, auditors, and asset completed its $2.9 billion acquisition of the Warnaco Group. That opportunity set doesn’t include managers. Neuberger itself is a client. integration note that and whilst the“They attached (which is a reprint) specific US fundhas proved challenging, complicated financial Please instruments, arearticle an indispensable sourcerelates of to aThe he says, and Warnaco’s significant expoKantor uses leverage which sparingly. data fortothe bond outside and derivative worlds, is NOTInstead, generally available investors of the United States, the portfolio manager he and his team of six analysts focus on have high recurring revenues, and are a sure to Asia, Latin America, and Europe Charlesand Kantor (and hisbeneficiary team) manages the overallregulatory strategy for short helped. equity funds, But Kantor is more interfinding undervalued stocks shorting of an enhanced en-longhasn’t ested in prospects. “We individual securities, sectors, or aindexes. says. Nevertheless, including similar UCITSvironment,” fund that ishe available to investors in“there several jurisdictionsPVH’s outsidelong-term of like the management team of PVH, and “If someone gives us weStates. typically lot of skepticism built the price the$100, United A copyisofa the latest fact sheet for into the UCITS fundofcan be found on the web put $70 into securities we want to own for the stock,” recently trading at $25 — or when you give good managers more assets, at http://www.nb.com/_layouts/www/transfer.aspx?URL=/Products/us-long-short-fund.aspx. at least two to five years, and $30 into se- about 10 times 2015 earnings before inter- there’s the potential to create value,” he curities we want to short,” he says, though est, taxes, depreciation, and amortization, says. “Integrating licenses on a regional that ratio will vary, depending on his macro because of the company’s relative youth and country basis translates to better view. and the complexity of its business. The scale, pricing power, brand management, While he is optimistic about the U.S. fund bought it at its IPO for about $24 a and ultimately, we think, higher returns on capital.” n economy, Kantor thinks that rising vola- share.
Neuberger Berman Long Short
The attached article from Barron’s,
“Adding Gains, Curbing Pains”
profiled Charles Kantor, Portfolio Manager of the Neuberger Berman Long Short Fund
FOR PROFESSIONAL CLIENT USE ONLY.
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