The same way sovereign funds balked over Lehman Brothers CEO Dick Fuld's terms to sell them a chunk of the firm, some private equity firms are balking over Fuld's terms to sell them a part of Lehman's investment management business, which includes the firm's crown jewel, the Neuberger & Berman asset management unit, sources have told CNBC.

As first reported by CNBC, Fuld, Lehman's long-time chief executive, is looking to sell a 70 percent stake in the investment management division and have an option to buy it back at a later date. As a carrot to the potential buyer is a warrant to purchase a 20 percent stake in Lehman that could be cashed in when the credit crisis abates and the firm's stock price recovers.

But potential buyers—which include nearly every major private equity firm—are starting to balk at Lehman's initial offer, according to Wall Street executives familiar with the matter.

Their problem is the price. Lehman

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[LEH  Loading...      ()   ] is pricing the investment management division at around $10 billion, meaning a 70 percent stake would cost $7 billion. But the real cost will be much more than that, because asset management firms are only worth something if employees remain with them following such a transaction. Potential bidders believe that unless they set up a large retention pool—something in the neighborhood of $400 million to $500 million to keep employees at their jobs—the talent will walk, these people say.

And they have reason to worry: As first reported by CNBC, long-time Neuberger money manager Marvin Schwartz has pushed for a spinoff of Neuberger in recent weeks, because the sharp decline in Lehman shares has squeezed the net worth of many Neuberger partners who were paid in Lehman stock. Non-compete agreements prevent Neuberger money managers from simply going and working elsewhere, but they can decide to simply quit Lehman and sell their shares.

Bert van Dijk

Lehman bought Neuberger in 2003 for $2.5 billion.

Meanwhile, many of the firm retail brokers, who are part of the firm's investment management division, have been offered jobs by the likes of Morgan Stanley

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[MS  Loading...      ()   ], plus bonuses to jump ship. Without a retention package, many might just leave Lehman, particularly as the firm's prospects grow dimmer.

Of course, Lehman could change the terms of the deal and sell the investment management division for less, but that could also be problematic. Lehman is in a precarious position. The firm expected to announce a large loss for the third quarter and write down billions of dollars in additional bad debt on its books as it attempts to sell commercial and subprime real estate to other parties at a steep loss. That's why the firm is looking to sell the investment division—to raise capital to cover those losses. But its unclear just how big the losses might be; so-called credit spreads have widened in recent days, meaning the value of its bad debt has likely shrunk even further.

A Lehman spokeswoman had no comment.

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