DEFA14A: Neuberger Berman Defends Board Structure Against Saba Nominee, Cites Potential Cost Increases and Inefficiencies

Neuberger Berman addresses concerns raised by Institutional Shareholder Services (ISS) regarding the potential addition of a Saba Nominee to the NBH and NBXG Boards, arguing it would lead to increased costs and operational inefficiencies.

Summary

• Neuberger Berman has responded to questions from Institutional Shareholder Services (ISS) regarding the potential addition of a Sabas Nominee to the boards of Neuberger Berman Municipal Fund Inc. (NBH) and Neuberger Berman Next Generation Connectivity Fund Inc. (NBXG).
• The company argues that adding a Sabas Nominee would result in additional costs and inefficiencies due to the current unitary board structure, where the same members serve on the boards and committees for all funds in the complex.
• Neuberger Berman estimates that a non-unitary board arrangement would at least triple costs, including direct expenses for separate meetings, management and legal costs for producing separate materials, and costs to board members due to loss of context and efficiency.
• The company also provided data comparing the performance of Saba Capital Income & Opportunities Fund (BRW) to the Morningstar US CEF Senior Loans category, indicating that BRW has underperformed since Saba took over management on June 4, 2021.
• BRW's annualized NAV Total Return has trailed the Morningstar category by 2.4%, and its annualized Market Price Total Return has trailed by 1.1% since Saba took over management.

Sentiment

Score: 4

Explanation: The document presents a defensive stance against potential changes to the board structure and highlights underperformance, resulting in a somewhat negative sentiment.

Positives

• The current unitary board structure is presented as efficient and effective for fund governance.
• Neuberger Berman emphasizes the benefits of board members having broader and more complete information by serving on multiple fund boards.
• The company highlights the potential for better oversight on behalf of all fund shareholders due to the unitary board structure.

Negatives

• The potential addition of a Sabas Nominee is portrayed as leading to increased costs and inefficiencies.
• The document highlights BRW's underperformance relative to its peer group since Saba took over management.
• The document suggests that BRW stockholders have experienced weaker returns and have not seen their share price move closer to NAV under Saba's management.

Risks

• The potential disruption to the current board structure could negatively impact fund performance and shareholder value.
• Increased costs associated with a non-unitary board arrangement could reduce profitability.
• Continued underperformance of BRW could lead to investor dissatisfaction and potential loss of assets under management.

Future Outlook

The document does not provide explicit forward-looking statements but implies that maintaining the current board structure is crucial for efficient and effective fund governance.

Management Comments

• The Neuberger Berman fund complex is currently overseen by a unitary board and its committees, which means that the same board members serve on the boards and committees for each fund in the complex.
• This creates efficient and effective governance for each Fund because, among other things, the directors/trustees have broader and more complete information by virtue of sitting on the boards of other funds/trusts in the Neuberger Berman fund complex.

Industry Context

This announcement reflects an ongoing debate regarding board structure and shareholder activism in the investment management industry, particularly concerning closed-end funds. Activist investors like Saba often seek board representation to influence fund strategy and potentially unlock value, while incumbent managers defend their existing structures and strategies.

Comparison to Industry Standards

• The document compares BRW's performance to the Morningstar US CEF Senior Loans category, a common benchmark for closed-end funds investing in senior loans.
• The comparison highlights BRW's underperformance relative to its peers since Saba took over management, suggesting that Saba's strategies have not been as effective as those of other fund managers in the same category.
• Other comparable companies in the closed-end fund space include Eaton Vance, BlackRock, and Nuveen, which also manage funds in the senior loan category.

Stakeholder Impact

• Shareholders could be impacted by changes to the board structure and potential cost increases.
• Employees may be affected by operational inefficiencies resulting from a non-unitary board arrangement.

Key Dates

Keywords

Neuberger Berman, Saba Capital, Board Structure, Unitary Board, Proxy Statement, Fund Governance, BRW, NBXG, NBH, Costs, Inefficiencies, Performance, Institutional Shareholder Services, ISS