Dec. 2 (Bloomberg) -- Carlyle Group, the second-largest private-equity firm, decided not to bid for Neuberger Berman, the Lehman Brothers Holdings Inc. fund unit that’s being auctioned in bankruptcy court, according to two people familiar with the sale.

Carlyle, based in Washington, said in October it was working with former Neuberger Berman Chief Executive Officer Jeffrey Lane to counter an offer made by buyout firms Bain Capital LLC and Hellman & Friedman LLC. The Standard & Poor’s 500 Index has dropped 24 percent since Sept. 29, when Bain and Hellman & Friedman proposed acquiring most of Lehman’s asset- management business for $2.15 billion.

With Carlyle’s departure, creditors lost a chance to get a higher price for one of Lehman’s most valued assets. Worse, Bain and Hellman & Friedman may have the option to walk from their offer because it is conditioned on an S&P average closing price of more than 902 for the 10 trading days before the sale is completed. The S&P closed at 816.2 yesterday.

“The value of Neuberger Berman is lower than it was in September,” said Steven Kaplan, a professor of finance at the University of Chicago Graduate School of Business. “Assets under management have gone down with the market. Bain and H&F may try to negotiate a lower price if they have that ability.”

The deadline for bids was extended to today from Dec. 1, and it’s not clear whether other offers were submitted, said the people, who asked not to be identified because the auction is private.

Officials for Carlyle, Boston-based Bain, Hellman & Friedman of San Francisco and New York-based Lehman declined to comment.

Fuld’s Failed Effort

Lehman’s investment unit earned $361 million on $2.3 billion of revenue this year through August, according to a Sanford Bernstein research note at that time. The report valued the division at $7 billion.

Former Lehman Chief Executive Officer Richard Fuld had sought to sell the money-management unit to help his firm avoid collapse. That effort failed, and Lehman, once the biggest U.S. underwriter of mortgage-backed bonds, filed for bankruptcy on Sept. 15. The firm proceeded with the sale, which ultimately did not include the entire investment unit. Besides Bain and Hellman & Friedman, firms that expressed initial interest included Carlyle, Blackstone Group LP and Clayton Dubilier & Rice.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: jkelly14@bloomberg.net; Jonathan Keehner in New York jkeehner@bloomberg.net.

Last Updated: December 2, 2008 17:17 EST