This week, privately held asset manager Neuberger Berman, the employee-owned investment firm with $402 billion in managed client assets, held an initial public offering (IPO) of a newly organized closed-end fund, Next Generation Connectivity Fund Inc. Listing on the New York Stock Exchange under ticker NBXG, the fund has raised $1.5 billion in proceeds by agreeing to sell 75,000,000 shares of common stock at $20 per share.
“We believe the development and deployment of the digital infrastructure that will serve as the backbone for new technologies presents an enormous investment opportunity. The fifth generation (5G) and future generations of mobile networks, and their unique ability to enable device-to-device communication, has the potential to unlock tremendous commercial opportunities, including the expanding use of autonomous vehicles, increasing the productivity and automation of factories, and improving connected health care, such as remote care and surgery,” said Hari Ramanan, Chief Investment Officer of Neuberger Berman Research Funds, and one of the fund’s portfolio managers.
In pursuit of its investment objectives of capital appreciation and income, the fund will invest, under normal market conditions, at least 80 percent of its total assets in equity securities issued by U.S. and non-U.S. companies, in any market capitalization range, that are relevant to the theme of investing in “NextGen Companies.”
The Fund considers “NextGen Companies” to be companies that, in its adviser’s view, demonstrate significant growth potential from the development, advancement, use or sale of products, processes or services related to the fifth generation (5G) mobile network and future generations of mobile network connectivity and technology. The U.S. and Asia-based team leading the strategy current manage over $10 billion in next generation connectivity assets, including the proceeds of this week’s IPO.
In a recent market comment, Neuberger Berman Director of Asia Research Yan Taw Boon said the firm’s Next Generation Connectivity Strategy had taken advantage of recent market drawdowns to strategically increase allocations to four attractive areas: U.S. 5G network rollout, strategic investment in semiconductors, dollar content increase in 5G smartphones, and finally, proliferation of 5G applications and services.
Boon said portfolio exposures had been reduced in areas showing weakness from valuation compression, and where fundamentals have changed, keeping focus on high-quality names with high earnings growth at reasonable current valuations to capture long-term opportunities in the broader 5G megatrend.
Boon said that two developments in 5G that Neuberger is particularly excited about include semiconductors, given ongoing digital transformation and structural demand for semiconductors. Current supply is unable to keep pace with global semiconductor demand, and capacity expansion and R&D will take years to mature, even as nations strategically invest to build their own on-shore supply chains. Second is the 5G push outlined in the Biden Administration’s Infrastructure Plan, which earmarks $100 billion to expand high-speed broadband coverage and $50 billion for semiconductor production and research.
“Our portfolio is well positioned to capture this opportunity, with 35-40 percent of the portfolio being directly exposed to this plan,” he said.
