Conflict Disclosures for United States Retail Clients
As of June 30, 2020
Neuberger Berman Breton Hill ULC (“NBBH”) is registered with the Securities and Exchange Commission (“SEC”) as an investment adviser. NBBH is an indirect subsidiary of Neuberger Berman Group LLC (“NBG”). NBG is a holding company, the subsidiaries of which (collectively referred to herein as the “Firm” or “Neuberger Berman”) provide a broad range of global investment solutions – equity, fixed income, multi-asset class and alternatives – to institutions and individuals through products including separately managed accounts, registered funds and private investment vehicles. As a global investment firm providing various advisory, brokerage and other services, the Firm engages in and will continue to engage in activities that creates conflicts between the Firm’s interests and those of its retail clients.
Generally, a conflict of interest involves a scenario that could create an incentive for NBBH or its portfolio managers (“NBBH Advisers”) to serve one interest over another interest or obligation. Conflicts of interest that arise include: (1) the Firm, NBBH, or NBBH Advisers serving the interest of NBBH or the Firm over that of a retail client; (2) NBBH or NBBH Advisers serving the interest of one client or group of clients over those of other clients; or (3) NBBH Advisers serving their own interests over those of the Firm, NBBH, or its retail clients.
The following summarizes certain conflicts of interest that exist with respect to NBBH’s business and its retail clients. Currently, NBBH’s retail clients are also clients of our affiliate, Neuberger Berman Investment Advisers LLC (“NBIA”), that invest in “tax managed” strategies offered to retail clients by NBIA and managed by NBBH. The Firm has adopted policies and procedures reasonably designed to comply with applicable law (including its fiduciary duty under ERISA (as defined below)) and reduce and manage many of the conflicts described below, but it cannot eliminate or mitigate all conflicts. Please see NBBH’s Form ADV, Part 2A brochure at http://www.nb.com/adv_part_2A_nbbh/ or contact your representative at Neuberger Berman for additional information regarding NBBH and its advisory services, or your investment advisory account(s). In addition, please refer to NBIA’s conflicts disclosure summary at http://www.nb.com/conflicts_disclosure_nbia/ for a summary of conflicts of interest relating to fees charged to you with respect to your “tax managed” account.
In addition to the summary below, each retail client should carefully review the retail client’s advisory agreement. If you are not a retail client and would like additional information regarding the services provided to you by NBBH, please contact your Neuberger Berman representative.
Compensation of NBBH Advisers
In general, most NBBH Advisers are compensated based on the revenues generated by NBBH and its affiliates with respect to the clients they cover. NBBH Advisers are eligible to participate in a compensation pool made available to NBBH, the amount of which is determined based on a number of factors including the revenue that is generated by NBBH. The percentage of revenue received by an NBBH Adviser or NBBH varies across products and strategies.
Because NBBH and NBBH Advisers are compensated based on revenues generated, this creates an incentive for NBBH and NBBH Advisers to increase the amount of assets invested with NBBH and its affiliates. To increase the amount of assets invested with NBBH and its affiliates (whether to increase revenue (and therefore compensation) or to hit certain targets), NBBH and NBBH Advisers have an incentive to promote or recommend that retail clients or prospective retail clients invest more of their money with NBBH and its affiliates, including by transferring assets from other managers to Neuberger Berman for NBBH to manage.
Allocation of Investment Opportunities
NBBH serves as investment adviser for a number of clients, many of whom pursue similar or overlapping investment strategies. NBBH considers many factors when allocating investment opportunities among clients, including each client’s investment objectives, applicable restrictions, the type of investment, the number of shares purchased or sold, the size of each client’s account, and the amount of available cash or the size of an existing position in each client’s account. The nature of a client’s investment style could preclude it from participating in many investment opportunities, even if the investment would otherwise be permissible under the client’s written investment restrictions. Although NBBH seeks to allocate investments fairly and equitably over time, clients are not assured of participating equally or at all in any particular investment opportunity. While some investments have regulatory eligibility requirements, NBBH will also, from time to time, impose its own additional eligibility requirements with respect to certain investments.
When allocating investment opportunities, especially those that are limited (e.g., investments in private companies, private investments in public equity, or other private placements or restricted securities (collectively “Private Investments”), NBBH and NBBH Advisers have an incentive to favor certain clients or accounts, such as higher feepaying accounts (including accounts that are subject to performance fees), larger institutional clients, or clients from whom they are seeking additional business (collectively, “Favored Clients”). In addition, by imposing additional eligibility requirements, NBBH can further limit the universe of clients to which it will allocate certain investment opportunities.
From time to time, NBBH and NBBH Advisers can allocate client assets to, or invest client assets in, certain illiquid or less liquid investments such as Private Funds, Private Investments, derivatives and certain non-U.S. securities. These types of investments are often more speculative and can involve a higher degree of risk than more traditional investments.
NBBH and NBBH Advisers have an incentive to allocate client assets to, or invest client assets, in illiquid or less liquid investments because to the extent the client is restricted in, or prohibited from, selling the illiquid or less liquid asset, NBBH could continue to receive advisory fees (and NBBH Advisers will continue to be compensated) so long as the asset is held in the client’s account.
To the extent the Firm wishes to seed or otherwise increase the AUM of any particular NB Private Funds, the Firm has an incentive to encourage NBBH and NBBH Advisers to recommend those NB Private Funds.
The NB Private Funds are generally organized or “sponsored” by NBBH or an affiliate, and NBBH or its affiliate may act as the managing member or general partner of the NB Private Fund. For certain NB Private Funds, affiliates of the Firm also serve as officers, directors or other persons authorized to facilitate the operation of the NB Private Funds.
NBBH and its affiliates provide advisory and other services for many clients. Specifically, portfolio managers for separately managed accounts (“SMAs”) manage accounts for many clients in accordance with various strategies. Similarly, many NBBH Advisers manage more than one strategy or more than one product type (e.g., SMAs for retail clients, separately managed accounts for institutional and other clients, Private Funds, etc.). In most cases, those services, strategies and products will have differing fees.
In providing various services to its retail clients, NBBH (and NBBH Advisers) and its affiliates (and their financial professionals) face conflicts of interest with respect to activities performed for, or opportunities recommended or provided to, retail clients, on the one hand, and their other clients on the other hand. For example, in determining how to allocate certain investment opportunities, NBBH and NBBH Advisers have an incentive to allocate the best opportunities to certain clients or groups of clients (e.g., Favored Clients), which can mean allocating those opportunities away from other clients. Similarly, NBBH and NBBH Advisers have an incentive to dedicate more time and resources to certain clients or groups of clients (e.g., Favored Clients).
NBBH and NBBH Advisers have an incentive to use their knowledge of trading for client accounts to generate greater profits from trading in accounts for certain clients or groups of clients (e.g., Favored Clients).
It is possible that, from time to time, the strategy or product to which one client is allocated could create or involve conflicts with the strategies or products to which another client is allocated. For example, the portfolio manager for an SMA could negotiate a purchase of securities from an issuer for some client accounts that would negatively impact other securities issued by the same issuer held in other client accounts or take an action with respect to some clients’ securities that adversely impact other clients’ interests in securities of the issuer (see “Proxy Voting”, below).
From time to time, NBBH and NBBH Advisers will, on behalf of different client accounts, make different investment decisions, including investing in different parts of the same issuer’s capital structure (e.g., equity or debt or different positions in the debt structure), investing in different classes of securities that have different rights or priorities, or taking long and short positions in the same security.
Where NBBH and NBBH Advisers, on behalf of different client accounts, make investments in different parts of an issuer’s capital structure, NBBH could pursue rights and privileges or otherwise make decisions with respect to an issuer (e.g., whether to exercise certain rights or take an action, proxy voting, corporate reorganization, how to exit an investment, or bankruptcy or similar matters (including, for example, whether to trigger an event of default or the terms of any workout)) that have, or could have, an adverse effect on some retail client accounts.
NBBH and NBBH Advisers could negotiate a purchase of securities from an issuer for some client accounts that would negatively impact other securities issued by the same issuer held in other client accounts.
NBBH and NBBH Advisers could refrain from recommending or making certain investments or be limited by law, courts or otherwise in the actions they can recommend or take on behalf of certain clients as a result of the holdings of, or investment decisions made on behalf of, other clients.
If NBBH and NBBH Advisers take a short position in a security for certain clients while holding a long position in that security for certain other clients, the short position could negatively impact the value of the long positions held by certain retail clients.
Material Non-Public Information / Insider Trading
From time to time, the Firm and its financial professionals (including NBBH and NBBH Advisers) receive material non-public information (“MNPI”). In those cases, in accordance with the Firm’s procedures and applicable law, NBBH and NBBH Advisers are prohibited from rendering investment advice or otherwise using MNPI until such time as the information is no longer deemed to be non-public or material. Alternatively, it is possible that the Firm and its financial professionals (including NBBH and NBBH Advisers) will, at times, take actions to avoid obtaining MNPI (e.g., NBBH could decide not to join a creditor’s committee), which could lead to lost investment opportunities.
If the Firm or its financial professionals (including NBBH and NBBH Advisers) acquire MNPI (whether intentionally or unintentionally), that would restrict the ability of NBBH and NBBH Advisers from making allocations or investments based on or otherwise using MNPI, even on behalf of retail clients.
When considering whether to acquire MNPI, the Firm will attempt to balance the interests of all clients, taking into consideration relevant factors, including the extent of the prohibition on trading that would occur, the size of the Firm’s existing position in the issuer, if any, and the value of the information as it relates to the investment decisionmaking process. Because the interests of its clients could differ, the Firm will be conflicted in making its determination.
If the Firm decides not to acquire MNPI, it could choose to avoid taking actions or take actions that would have otherwise benefited the investments held by retail clients.
Environmental, Social and Governance (“ESG”) Standing
NBBH and its affiliates often reference their integration of ESG factors in their marketing materials, including certain scores they have been awarded for their overarching approach(es) to ESG strategy and governance and integration across asset classes. In addition, under the terms of one of the Firm’s credit agreements, the Firm has an incentive to maintain or improve certain of its ESG ratings.
NBBH and its affiliates have an incentive to encourage NBBH Advisers to invest or allocate client assets and vote proxies based on ESG factors in order to maintain the Firm’s ESG scores or improve the Firm’s ESG standing so that the Firm can continue referencing those scores in marketing materials in an effort to attract new clients or additional assets from existing clients, and maintain or improve those scores to retain the interest rate under one of the Firm’s credit agreements. The use of ESG factors is not always consistent with maximizing the performance of client accounts.
NBBH generally has voting power with respect to securities in SMAs unless the client has not delegated voting power to NBBH.
While NBBH has a proxy voting policy in place reasonably designed to ensure that NBBH votes proxies in the best interest of its advisory clients for whom NBBH has voting authority, it is possible that the Firm will vote proxies in a way that benefits its interests over the interests of clients or the interests of certain clients over other clients. For a copy of NBBH’s proxy voting policy, please visit http://www.nb.com/proxy-voting or contact your Neuberger Berman representative.
From time to time, it is possible that NBBH and NBBH Advisers will invest for their own account in equity, fixed income, derivatives or other investments to which NBBH and NBBH Advisers also allocate retail client assets or in which NBBH and NBBH Advisers also invest retail client assets. Any personal trading activities by NBBH Advisers are governed by the Firm’s Code of Ethics adopted pursuant Advisers Act Rule 204A-1. A copy of the Code is available from your NBBH Adviser on request.
NBBH and NBBH Advisers have an incentive to use their knowledge of trading in client accounts to generate greater profits from trading in their personal accounts.
NBBH and NBBH Advisers who have access to client trading information have an incentive to execute a trade in the opposite direction from a client after a trade is executed on the client’s behalf in order to receive a better price on a buy or sell.
From time to time, it is possible that, where there are limited investment opportunities (e.g., IPOs and Private Investments), NBBH and NBBH Advisers will invest in the opportunity for their own account rather than allocating the opportunity to retail clients.
NBBH and NBBH Adviser have an incentive to take more potentially profitable investment opportunities for themselves rather than giving the opportunity to retail clients.
From time to time, it is possible that, NBBH and NBBH Advisers will buy, sell or hold securities for their personal accounts while entering into different investment decisions for one or more retail clients, including investing in different parts of the same issuer’s capital structure (e.g., equity or debt or different positions in the debt structure), investing in different classes of securities that have different rights or priorities, or taking long and short positions in the same security.
With respect to certain decisions relating to an investment including whether to exercise certain rights or take an action, proxy voting, corporate reorganization, how to exit an investment, or bankruptcy or similar matters (including, for example, whether to trigger an event of default or the terms of any workout), NBBH and NBBH Advisers have an incentive to make decisions that favor the position in which they are personally invested, potentially to the detriment of the retail client’s position.
NBBH and NBBH Advisers could negotiate a purchase of securities from an issuer for their personal accounts that would negatively impact other securities issued by the same issuer held in retail client accounts.
NBBH and NBBH Advisers could refrain from recommending or making certain investments or be limited by law, courts or otherwise in the actions they can recommend or take on behalf of certain retail clients as a result of the holdings or investment decisions made in their personal accounts.
If NBBH and NBBH Advisers take a short position in a security for their personal account that they believe will be profitable, that short position could negatively impact the value of a retail client’s long position.
Outside Business Activities
In most cases, the Firm requires its employees, including NBBH Advisers, to disclose outside activities and affiliations to the Firm in writing so that responsible personnel are able to assess the compatibility of the outside affiliation or activity with their role at the Firm. “Outside affiliations” include relationships in which a Firm employee serves as an employee, director, officer, partner or trustee of a public or private organization or company other than the Firm (paid or unpaid), including joint ventures, portfolio investment companies, or non-profit, charitable, civic or educational organizations. In some cases, those relationships are related to employment with the Firm. Additionally, Firm employees are generally prohibited from (i) being employed by another company or engaging in other activities that could interfere or conflict with their service at the Firm, (ii) being employed by, or serving on a board or in an advisory position with, any public company or with other firms in the financial services industry, or (iii) entering into independent non-Firm related business relationships with clients, vendors, or co-workers. Exceptions to these prohibitions can be made in writing on a case-by-case basis by the Legal and Compliance Department. Certain Firm employees serve, under certain limited circumstances, as an executor, trustee, guardian or conservator, with prior approval from the Legal and Compliance Department. Brokerage accounts under control of the employee as a result of their service as an executor, trustee, guardian or conservator must be disclosed in accordance with the Firm’s Code of Ethics. The Firm generally permits employees to engage in philanthropic, charitable or other similar pursuits, subject to certain limitations and with prior approval from the Legal and Compliance Department.
Firm employees, including NBBH Advisers, who spend some portion of their time on non-Firm matters have less time to allocate to managing the retail client accounts.
It is possible that, from time to time, the interests of an outside activity could conflict with the Firm, its clients or their investments.
While the Firm does not make political contributions, Firm employees, including NBBH Advisers, are permitted, in compliance with the Firm’s policy and procedures and applicable law, to make political contributions (including in-kind contributions) to government officials and political party committees. Some government officials have influence in awarding government or public pension investment advisory business (i.e., “pay-to-play” practices) or in other actions.
The Firm’s employees, including NBBH Advisers, have an incentive to make contributions to certain government officials and party committees in order to obtain government or public pension investment advisory business or influence other government actions.
Gifts and Entertainment
The Firm allows its employees, including NBBH Advisers, to provide limited business gifts and entertainment to personnel/representatives of clients or prospective clients, subject to the Firm’s policies and procedures.
While the Firm prohibits its employees, including NBBH Advisers, from providing business gifts or entertainment that is excessive, inappropriate or intended to cause any person to act against the best interests of their employer, the client they represent or those to whom they owe a fiduciary duty, the Firm and its employees, including NBBH Advisers, have an incentive to provide such gifts and entertainment in order to obtain advisory business or influence the decisions of the recipient.
The Firm allows its employees, including NBBH Advisers, to accept limited business gifts and entertainment from clients, prospective clients, employees or agents of clients, outside vendors, suppliers, consultants, and other persons or entities with whom the Firm does business, subject to the Firm’s policies and procedures.
While none of the Firm’s employees, including NBBH Advisers, are permitted to accept any gift or entertainment of a significant value or that impairs, or appears to impair, employee ethics, loyalty to the Firm, or ability to exercise sound judgment, the receipt of gifts or entertainment (or the possibility or expectation of any gift or entertainment) could affect the judgment of the Firm’s employees, including NBBH Advisers, when making decisions, including when selecting vendors or other service providers.
For equities, NBBH will, at times, engage in cross trading where permissible (i.e., transfer, sell or purchase assets from one client account to another client account without the use of a broker-dealer), if it determines that the cross trade and the conditions for the transaction would be favorable to both client accounts and the terms of the transaction are fair to both parties. For fixed income, generally, it is NBBH’s policy not to engage in buying or selling of securities from one client account to another except where it believes that the cross trade is in the best interest of both clients. The vast majority of trades made for client accounts will be executed through the open market or with reference to an independently established market price. For both equity and fixed income cross trades, neither NBBH nor its affiliates will receive transaction-based compensation from the trade. In certain situations, specific consent for each such transaction are required from both parties to the transaction.
It is possible that, from time to time, NBBH will enter into a cross trade between client accounts that benefits one group of clients (e.g., Favored Clients) over another group of clients.
NBBH has adopted policies and procedures for correcting trade errors. Errors can result from a variety of situations involving portfolio management (e.g., inadvertent violation of investment restrictions) or trading (e.g., miscommunication of information, such as wrong number of shares, wrong price, wrong account, calling the transaction a buy rather than a sell and vice versa, etc.). NBBH’s policies and procedures require that all errors affecting a client account be resolved promptly and fairly upon discovery. Under certain circumstances, the policy provides that trades can, where appropriate, be cancelled or modified prior to settlement. The intent of the policy is to reasonably assure that, if a trade error results in a client’s account being in a worse financial position, the account is restored to the appropriate financial position considering all relevant circumstances surrounding the error.
In situations where correcting a trade error would result in NBBH bearing financial losses, NBBH has an incentive to ignore or understate the trade error.
NBBH utilizes various third-party service providers and vendors in connection with the provision of its advisory services.
When hiring third party vendors to service client accounts, NBBH has an incentive to choose vendors at the lowest possible cost to NBBH or vendors that provide other financial incentives (e.g., potentially referring clients to NBBH or its affiliates).
NBBH’s “tax managed” strategies utilize a central trading desk to execute equity transactions with third-party brokers. NBBH looks to the overall quality of service provided by the broker and will consider many factors when making a selection for execution. It is NBBH’s policy to seek the best execution of client trades considering all the relevant circumstances. In addition, NBBH can consider research and other services in making brokerage decisions. NBBH will also utilize alternative trading systems when NBBH believes the alternative trading systems can provide liquidity and price improvement over and above what is available through traditional methods for execution.
NBBH has an incentive to select brokers for execution taking into account its own financial or other interests (e.g., potentially receiving referrals of clients or increased allocations in initial public offerings).