Neuberger Berman sees the world of asset management struggling to reconcile the economic recovery with the downside risk of inflation, rising debt levels and a world economy that is still gasping for breath.

At a media luncheon in New York City Tuesday, the employee-controlled money manager, brought together a panel of their executive and portfolio managers to discuss equities, fixed income and economic concerns.

Joseph V. Amato, president of Neuberger Berman Group LLC, said there is a gap between expectations and reality in the financial industry: While mergers and acquisitions are expected to accompany an economic recovery, the firm has seen a shortage of M&A. At the same time consumers are spending although debt levels continue to be high.

Part of the problem is that there is so much confusion about Federal Reserve policy, the European sovereign debt crisis, and currency volatility.

“The market expectation was that Greece would fix its issues relatively quickly,” said Bradley C. Tank, managing director and chief investment officer of fixed income. But that hasn’t happened, leaving investors more cautious about adding risk into their portfolios.

While investors treated last year as a way to make up for the losses of 2008, Neuberger Berman predicts a muted recovery, a sign that this year may not be as easy on the wallets – or the psyches - of investors. “The recovery is susceptible to being derailed,” said Anthony D. Tutrone, managing director and global head of the firm’s NB Alternatives Group. “It’s the most psychological market we’ve ever seen.”

The challenge is investors aren’t sure where to put their money. Those equities that did well from 2005 through 2009 in terms of consistency of performance did poorly during the recovery, said Arthur Moretti, the lead manager of the Neuberger Berman Guardian Fund.

That has meant money has flowed into fixed income and out of equities. Yet Sandy M. Pomeroy, managing director and portfolio manager with Neuberger Berman’s MLG Group, said that bond funds have never been riskier given the uncertainty around interest rates.

Deleveraging the economy and re-regulating the financial industry seem to be the only certainties right now. The painful reality is that, “the financial economy in the West compared to the rest of the economy will get smaller,” Tank said.