The Harder Questions: Neuberger CEO George Walker on Private Credit, AI and Active Ownership

[MUSIC] Investors today are navigating one of the most complex environments in a generation. Markets are being reshaped by artificial intelligence. Geographic power is shifting. Private markets are maturing and in some corners showing their first signs of stress. And the very definition of what it means to have a trusted financial partner is being renegotiated. Our guest today has spent the past year and many before that, thinking hard about all of it. Not just on behalf of his firm, but on behalf of the clients who have entrusted it with over half a trillion dollars. George Walker is the CEO of Newburger and he's just published his annual letter to stakeholders. A letter that doesn't just recap a strong gear, but confronts some of the harder questions facing investors and asset managers. Is AI delivering for investors yet? Where are the real risks in private credit? And who's filling the void as some of the industry's largest players pull back from active ownership? We'll get to all those questions and more. George, welcome back to Disruptive Forces. Thank you. It's great to be here with you and new. George, your letter opens with some striking data points. 96% client satisfaction rate and an award from pensions and investments as number one, best place to work among money management firms with over a thousand employees. Now most CEOs would probably be taking a victory lap, but you use it to ask the next question, what do clients want more of? And in your letter, you land on three things, broader geographic reach, better strategy access and faster transparency. So why don't we start with having you walk us through what's driving those asks right now and how they're shaping your agenda? I would say that my first reaction to whether it was being named the number one firm by Greenwich when they went out and surveyed, I think it was 697 clients or the PNI one is terror. That if we won last year, we better win next year. So that you could only go down. Sometimes I prefer finishing number two rather than number one. You know, clients are telling us we just have to deliver more and that's great. Better access to information to our thinking. We're investing massively in technology, improved, whether it's both vehicles that better enable them to access different strategies, strategies that bring additional diversification benefits to a portfolio is I think few expect that we're going to have the same sort of benign markets, respectively, that we all have experienced historically. And so it is a tricky time as your introduction pointed out. And we live in a super competitive world with really tough competitors and we just have to improve. When we look at the investment platform, there's a growing conversation among allocators about whether the era of US large cap dominance is shifting. And at least in your letter, you seem to be building for a world where concentrated exposure to a handful of names may no longer be sufficient. So tell us about what's driving that conviction and how it's shaping where new burger invests from both capital and its resources perspective. We'd say two things. One from a market's perspective, we've obviously been through an extraordinary era, both US leadership and very narrow leadership amongst US companies, particularly large tech companies. And so folks who have wanted to invest in a diversified fashion and maybe have used the S&P 500 is a proxy for that. They're no longer getting that or the same diversification across industry and frankly company size that they have historically. So that's one thing that's going on. A second thing that's going on is folks are looking not clear that the US is going to demonstrate the same market leadership that we have historically. So both US investors looking more abroad and frankly we see it in whether it's in Japan or in the Middle East or in Europe of folks buildings portfolios that might have slightly smaller allocations to the US prospectively than they have historically. And they're looking at simple metrics like market cap to GDP and other other things and seeing that the US has a disproportionately large weight in their portfolio, which has worked really, really well historically but may not work as well prospectively. And I'd say the third thing with regards to Newburger, the firm that we had 20 years ago was a domestic firm. We've worked really hard to change that over the course of time. We have folks on the ground in 26 countries. We've built extraordinary investment teams and client coverage groups all around the world. And so the transformation is too folded. It's happening in markets. It's happening with clients and it's happening in the context of a firm that was once a fairly domestic firm, but really over the course of the past decade has become what is a truly global firm. Yeah, sure. And you mentioned the global footprint and expansion. The letter spoke about this as well. The PIF partnership in Saudi Arabia has been a near doubling of the PEDL count in Japan. Do you think of those as opportunistic or do you think there's a thesis that that's where the next decades of return may be coming from? I think there will be exciting returns in the GCC and the Kingdom specifically. I think they're going to I've been a long time Japan bull as they've gone through this remarkable transformation in terms of how companies there are being managed, which I still think is broadly underappreciated by folks outside of Japan. That having been said, those efforts for us have more to do with this transformation to be a truly a global firm. And so we're not investing in Japan because we have a near or intermediate term point of view that that's an attractive place to deploy capital. We happen to have that view, but that's that way we're investing there. We're investing there because it's a really big important market because we're trying to bring the world to our US clients as well as to clients around the world. And so we think to be a world-class global firm. You need to have significant real efforts on the ground in those markets. Markets that themselves are going through big transformation. So you'll see you mentioned the private equity opportunity in Japan. It's an incredibly exciting opportunity in private. Both in private equity, also in private credit that's fueling it. We're trying to be a leader and have built great teams in that market. But these are long, long, long term bets consistent with a firm that aspires to be great globally, not grounded in 2026 expectation of what's going to happen in markets. Absolutely. Maybe sticking with a theme of private markets, which you mentioned. In the annuletor, you have a great line. You write, there's a bubble in talking about whether private credit is a bubble. So I love that. I stole that from someone. I can't remember who said it because I'd love to get credit where credit is due. But I thought that was really good. No, it's good. It's catchy. I love that. But then you do something that's more interesting. You actually identify where the real risks are. And one of them, you mentioned, is structural. When asset gathering takes priority over asset management, capital gets deployed on a timeline of fundraising rather than investment credit. And I think that's a pointed thing to say in a market where everyone is fundraising. So for an investor sitting across from a private credit manager today, what are some of the questions they should be asking that most are not? They say they're the challenge that most folks have with regards to private credit is the headlines are so tough. And they're really addressing five or six different issues. And you have to you have to tick through each of them individually to get a better picture of the asset class. It's both with regards to private credit writ large. It's with regards to software, particularly financing generally. It's with regards to retail, entering the alternatives space. It's with regards to the liquidity mechanisms in the vehicles that are that are being used. There's a lot there's a lot going on. And I think frankly, the headlines have implied to folks greater risk and greater danger in the space than in fact exists. So if you just if you just read the headlines, you would think folks have lost 50% of their capital and it's been a it's been a disaster. But when you dig in, it in fact, the experience has been has been very, very different, which doesn't mean that there aren't real issues. There absolutely are real issues. So I think let me answer your question now specifically, which is, you know, what should individual investors be focused on? First, they need to focus focus on the quality of the underwriting of the manager that they are hiring. This has been largely a one-way trade for everybody. It's been more about beta in getting access to the asset class. Prospectively, it's going to be far more about our my credit guys' great and truly differentiating what is their competitive edge in sourcing, what is their competitive edge in evaluating deals. It's looking at their track record, what has been their default experience, what has been their amendment experience, why, what percent of their deals are in software narrowly, and even more broadly in places like business services, which are facing both risks and opportunity from AI. So it's digging into a few of those names. And understanding, is this a company that's likely to be hurt or helped by what's happening in AI? It's looking at who are the other investors in the vehicle? Am I investing side by side more with folks who historically have represented patient, stable, sticky capital, or is the vehicle that I'm investing in? Does it have a high proportion of investors who have historically been characterized as having fast money? Because the liquidity mechanisms that many of these provide allow for 5% quarterly gates, if you're in a vehicle where 50% of the other investors are what you would put in the fast money category, you should have a lower degree of confidence that you'll be able to withdraw amounts in excess of 5% of your capital, as opposed to if you're commingled with others who are more likely to be patient, stable, sticky capital. So it just think a lot of work has to be done. That's why gatekeepers are so important in hiring teams who are really thoughtful about who is their partner, how good are they in credit? What is the vehicle? How does it work? Who else is in here? Can I look at other vehicles that that manager manages to get a sense as to how their credit has been performing and the like? Well, actually related to that, let's talk about access because this is an area where the numbers in the annual letter are pretty eye-opening. At the end of 2025, the firm had 22 evergreen funds totaling $13.3 billion in assets and that was up 46% in a year. Active ETFs similarly at the firm nearly doubling to about $3 billion and our CIT platform for retirement plan sponsors, that was up 94% to about $6.5 billion. Now that growth, that's not just incremental. It really seems like a structural shift in how strategies are reaching our investors. So George, where does this go next? I'd say there hasn't been, if you take 10 steps back, there hasn't been sort of tremendous evolution of the vehicles that folks have used going back to 1940 and the pace of vehicle evolution. Oftentimes for the same tried and true strategies has changed logarithmically over the course of the past few years. And my expectation is that that will continue. So over time, firms are just going to continue to look for ways to build better, more tax-efficient vehicles that address investors need. So I think if you were to ask me to pick just one change that's likely prospectively, I think you're going to see more smaller SMAs over time and perhaps less combingling. But there, I can give you 27 examples of combingled vehicles where the combingled vehicle itself is a huge step forward. So the ETF versus yield traditional 40-act fund is a classic example. But the packaging in the industry is getting better and better. And that doesn't mean that we're not going to have, we'll have some missteps and some misunderstandings. I think that's part of what's happening in private credit. For example, I don't think people really understand what the 5% a quarter is and what it means. And I think some folks actions have made that more confusing, more clear. So we've tried to lean in hard there to really explain what it is and what it isn't. But I think you're going to continue to see better vehicles combingled and certainly more as technology enables us to do more things in smaller size for clients over time. And then any thoughts on private markets and defined contribution plans? That's still something that's kind of a nice idea for most plan sponsors. But I've had so many conversations over the course of the past 30 years where you meet with folks who were chief investment officers overseeing big DB and big DC problems that'll say, "Gosh, my DB returns are great and my DC returns are solid, but they're not quite as good." And the big difference between the two is, of course, access to private markets. So what I would like to see is enabling folks to make a choice. Do they want some access to private markets in their DC plan? Or don't they? Do they want, in fact, 100% daily liquidity on a portfolio that they don't plan to access for 10, 20, 30 years? And do they want to drive fees to zero, which is a totally legitimate choice, but folks should be able to have that choice. So in my mind, a better system would enable investors to put some of their capital, largely, frankly, in target dates or target risk portfolios into private markets. So in a perfect world, it would be a portion of their equity allocation would offer daily liquidity, and a portion wouldn't, and similar in credit. That requires a whole legal reform, potentially legislative reform. There's a lot of work between here and there. I'm less excited about individuals on their own being able to hire and fire PE managers on a daily basis. I think that as with many of these evolutions, some will, empowering folks oftentimes will go too far. There are lots of folks who would have put 100% of their plan into crypto, for example. And obviously that would have been a wonderful thing for a period. It would have ended in tears for many more recently. We believe in building thoughtfully diversified long-term portfolios and think that a portion of the underlying exposure could better reflect the liquidity that the individual investor actually needs, as opposed to necessarily having it all be, as liquid as humanly possible, and as low fee as humanly possible. That hasn't been the way that the world's largest, most sophisticated investors have ever invested large, combingal pools for which they're responsible. And I'd like to see the little guy benefiting from the same tools that the big guy's benefited from over time. I want to push on something that you say in the letter that I think takes some courage to say publicly that AI's productivity gains for the broader economy may take longer to materialize than the enthusiasm suggests. And internally, you're clearly leaning in. Our firm is using AI as you put it to amplify expertise without replacing judgment. So how do you hold both of these things at once, genuine optimism and genuine caution? The genuine optimism is grounded in the power of the tools. They're extraordinary. We are working as hard as we can to embed them in our investing activities, our client engagement, and our infrastructure. The caution that it will take longer is just grounded in the knowing how challenging it is for any firm. This is true for us, just as it is for our competitors, to get our data into a place that we can fully utilize the benefits of those tools. It's a far less straightforward exercise that I would have thought a few years ago as we embarked on this journey and requires also changes to processes. You know, give you a simple example. It's not just about taking all of our data and putting it in a place and setting the tools loose. We need to populate the new tools such that we could then utilize some of these extraordinary new capabilities. And so for every firm, at least in our business, there is a ton of work. I wish it were as simple as just deciding that you wanted to use them. Unfortunately, that's the easy decision, the hard decision. But there's a lot of hard grinding work that needs to be done so that you can really utilize them most efficiently and make it best deliver for clients in the firm. - Yeah, absolutely agree. And as you said, we're not alone in that pursuit as well. This is what all of our peers are also doing to hopefully be better for our clients. - Hopefully they're just doing it less quickly than we are. - That's the hope. George, earlier this year, Newburger signed an agreement to onboard MIO partners. Can you tell me a little bit more about that decision? - MIO is an extraordinary investment organization that had been built by and for McKinsey partners and alums. They had no external clients, truly extraordinary investors, almost 300 folks, just dedicated to serving those individuals. And so, I am somebody who am not a fan of big acquisitions. I'm a fan of grind dig slow organic growth, making ourselves better and improvement. You know, I don't have a view that scale is going to be determinative in the long term. In my mind, it's all about excellence. And so, this was different for us to bring on boards such a big established team. But I think for folks who are in and around the space, knowing the quality of MIO, their investment excellence, frankly, their cultural excellence too. It's no surprise given that they came out of McKinsey a firm we revere, it was just a really special and unique opportunity. They're joining us, which will happen officially late this year after various regulatory processes and the like. We'll be smarter. And I think we're going to be able to make them better because we are spending all day, every day, trying to address the same issues that they are. And so, I really think this is one of those neat win-win-win opportunities for everybody. And we were excited to pursue it. And frankly, just deeply honored that McKinsey picked us to be the new home for this special group. Sounds like a great alignment of values and future opportunity. Hope so. Let's shift towards stewardship. Here's a line from the annual letter that I keep coming back to. Capitalism needs owners behaving like owners. It's very simple, but it's very pointed. And it lands differently when you pair it with the fact that some of the largest passive managers reduce their engagement with companies by 20 to 30% last year while Newburger increased its engagement by 15%. So for someone listening who might think of stewardship as a nice to have, tell our listeners why it actually matters. What is the investor case? Well, it matters in two senses. One is for us, it not only matters in terms of, it's our job to be out working to make the companies we invest in better, but it's frankly through that engagement that we also learn a lot about the quality of management teams. By meeting with companies, by occasionally meeting with boards of companies and others, we get a far stronger sense is to whether or not that's a company in which our clients should be investing over the intermediate and longer term period. So for us, it's not separable from the investment process. I think more broadly though, the question is, who at the end of the day for the system to work, somebody's got to behave like an owner, I think if we were having this discussion a few years ago, passive firms, one would have been a lot smaller than they are, they keep growing, but two would have articulated a very sort of bold, ambitious program with regards to stewardship and engagement. They often would say, we got this because we can't sell, we have to invest, therefore we have to fix it. Given all of the political blowback, would folks didn't necessarily agree with how they wanted to fix it, particularly on topics like ESG, particularly around the S, those firms have been forced to retreat and increasingly I think are now saying that we are free riders and are going to provide our clients with exposure to those companies, but it's not for us to meddle in the decision making. Is that's not a problem when they represent a small part of the market. If they represent 100% of the market, it's a big problem. And it just keeps growing year after year, well above 50% now. And so if they're not going to be engaged as active owners, I think the question for the system is who is, and I just think it's important for those of us who are active managers to do more, to talk about it more, to share our point of view, we're one of, if not the only major firm that's pre-announcing proxy votes on issues that we think are important, often in support of management, often opposed to management. And I like to think that the institutional investment community, particularly over time and who are long-term holders of these assets are going to work more with firms like ours who are actively working to improve governance in stewardship because those things really matter to the long-term performance of the companies. Absolutely no, an important case for active management. George, as we begin to wrap up, I want to highlight that the annual letter ends with the idea that excellence is not a destination, it's a pursuit. What gives you confidence about the outlook for Newburger going forward? And what's one key message from our conversation today that you want our listeners to take away after listening to this? Oh gosh, what gives me confidence, frankly, the quality of our team. I've never-- we have a really special team that keeps getting stronger year after year. We've been able to retain our folks at a quite remarkable rate and have continued to be able to attract some extraordinary, extraordinary people. So you look at-- like when you go to the doctor and they run a series of tests, when you look at our weather clients are entrusting us with more or fewer of their irreplaceable assets, when you look at external surveys on how we're viewed, when you look at performance data versus peers and benchmarks, all of those things-- all of those things give me confidence that we're in a good place and hopefully getting stronger. But I must say, I wake up every day, paranoid and scared. Scared of great competitors who are doing smart things, scared of tricky markets, and so take none of the good stuff for granted. In terms of message, I don't really have one core message I should. But it would be sort of-- we're in this together. As a 100% employee-owned firm, we have no external shareholders or corporate parent to worry about. It's really just us and clients. The alignment, I think, is special and unique. And we're waking up every day, just trying hard to deliver for them. Absolutely. Well, to your analogy, the doctor's assessment is that everything is going well, and we are strong. But as you said in the annual letter, there's always room for improvement into making sure that we continue to deliver for clients. I'd be super disappointed. It would not have done my job. If 10 years from now, we're not looking back and saying, oh my gosh, we are so much better than we were in 2026. There is-- I'm thrilled with where we are, but we can be so much stronger, and that opportunity is exciting. Absolutely. Well, thank you so much, George. As you know, I can't let you go without a quick bonus question. George, you grew up in St. Louis, but New York has been your home for over 30 years now. And that's long enough. I think to have a real opinion here. So what's one thing about New York City that genuinely excites you? And what do you miss about Missouri that New York just cannot deliver? Wow. What do I miss? I love growing up in Missouri. The things I probably miss most frequently would be the sports teams that I grew up cheering for, who I look each day at their results. So the blues, the cardinals, some college teams, and some of the menu items that I grew up with-- Ted Drew's Frozen Custard, GUI Buttercake, if you haven't tried it, is life altering and toasted ravioli. Those would be a few things that I miss. And in terms of New York City, it's an extraordinary place. The people, the energy, it truly is the greatest city in the world. And love being here, love raising a family here, and can hold in the same moment, both by love of Missouri, as well as my love for my adopted home. All right, well, we'll have to find a GUI Buttercake somewhere in the city if possible. George, thank you so much for being here for sharing everything that you did today. I think one of the key takeaways from our conversation is that the-- firms earning trust in this environment aren't just the ones with strong returns. They're the ones who are asking the harder questions about access, about ownership, about what AI can and can't do. So thank you for sharing everything today for your leadership and for once again a genuine and candid conversation. Thank you and always special to be with you. 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