Aug. 27 (Bloomberg) -- Lehman Brothers Holdings Inc. is weighing bids from buyout firms KKR & Co. and Bain Capital LLC for the investment bank's asset management unit, three people briefed on the negotiations said.

Blackstone Group LP, manager of the biggest leveraged buyout fund, has dropped out of the bidding for the business, which oversees $277 billion including funds run by New York- based Neuberger Berman, according to two of the people who declined to be identified because the talks are private. Hellman & Friedman LLC and Carlyle Group also are out of contention, according to one person close to Lehman.

Lehman, once the biggest U.S. underwriter of bonds backed by mortgages, is trying to raise cash and reassure shareholders before reporting third-quarter financial results next month. Analysts surveyed by Bloomberg estimate the company will post a loss of $1.36 billion, after taking a $2.8 billion loss in the previous quarter, in part because of the decline in the value of assets tied to home loans.

``Lehman would rather not sell Neuberger Berman, but it's under pressure to do something,'' said Jeffery Harte, a Chicago- based analyst at Sandler O'Neill & Partners LP. KKR, in New York, and Bain, in Boston, ``would have an interest in buying the unit or a stake in it,'' he said.

Spokespeople for each of the private equity firms declined to comment. Kerrie Cohen, a spokeswoman for Lehman in New York, also declined to comment. The Financial Times reported earlier today that Lehman was assessing offers from KKR, Bain and San Francisco-based Hellman & Friedman.

Devalued Assets

Led by Chief Executive Officer Richard Fuld, Lehman has tumbled almost 80 percent this year in New York trading amid speculation that the firm may be forced to take additional writedowns on mortgage assets. Since the subprime home loan market collapsed last year, a global credit contraction has led to more than $500 billion in writedowns and losses at banks and brokerages.

Lehman, the fourth-largest U.S. securities firm, has been trying to dispose of devalued assets as demand for high-risk, high-yield debt dried up and prices plummeted.

Fuld, 62, is trying to convince investors that Lehman won't suffer the fate of smaller rival Bear Stearns Cos., which collapsed in March and was taken over by JPMorgan Chase & Co. after creditors and investors balked at doing business with the brokerage.

``Lehman is looking at all of its options and I suspect we'll see a variety of things,'' Harte said. ``They will reduce their commercial and residential mortgage portfolio, may sell the asset management business and could even raise additional capital.''

Kravis's Plan

KKR, the private equity firm led by Henry Kravis, plans to convert to a public company by the end of the year in a transaction that may give it a market value of as much as $15 billion. Rival Blackstone, which went public last year, acquired hedge fund GSO Capital Partners in January.

``This is a very attractive business for private-equity firms,'' Burton Greenwald, a mutual-fund consultant in Philadelphia, said in an interview Aug. 22. ``Financing an asset manager with a dependable stream of income will be easier for them.''

Neuberger Berman is the largest piece of Lehman's asset- management business. Lehman bought the company for $3.2 billion in 2003, when it had about $64 billion in assets. Neuberger, started in 1939 to serve wealthy clients, was among the first money managers to offer so-called no-load mutual funds, which don't charge transaction fees. Estimates on the value of the business by four analysts range from $6.5 billion to $13 billion.

Lehman, the worst performer this year on the 11-company Amex Securities Broker/Dealer Index, rose 75 cents, or 5.4 percent, to $14.78 in New York Stock Exchange composite trading today.

To contact the reporters on this story: Jonathan Keehner in New York jkeehner@bloomberg.net; Josh Fineman in New York at jfineman@bloomberg.net

Last Updated: August 27, 2008 16:15 EDT