New Star fading fast
One of the UK's leading asset managers seems to be the latest victim of the financial turmoil. The funds have been hit by massive redemptions and forced the asset manager to negotiate a debt-for-equity swap that would leave its lenders with a majority stake. Mr. Duffield's New Star is a very high profile firm in the UK market, and would definitely make headlines if it would fall: the advertising campaigns won awards when the company floated in 2005 as its all-star fund operators were spread across billboards - New Star had some of the best minds in the business and was determined to make a killing in the market. For a few good years, they indeed did.
The credit crunch has taken its toll on New Star: only this year, the company has seen its share price sink by 95%. Underperformance by high profile managers, a Mr. Whittaker and Mr. Evershed, could not have come at a aworse time. The whole confidence in the market has been shattered, so investors seeing their trusted high-return investments dipping quickly in value is the perfect reason for them to fulfill redemptions asap. The added debt burden of New Star, taken on already in 2007, is what is breaking the camel's back. As the credit markets have frozen over, the asset manager is struggling to refinance its loans - a hefty £300 million.
As if this wouldn't be troublesome enough for one company, it was forced to suspend trading in its flagship international property fund due alarming redemption rates. John Duffield, founder and chairman of New Star, told the Financial Times: “This is a crisis of confidence. There is nothing to be lacking in confidence about, and we’re determined to get through it.” Mr. Duffield did seem to be lacking confidence in his investors as he requested the Financial Services Authority to suspend trading in its shares today. The request was denied, and New Star shares saw a further drop of 50% in their value in early trading - a crisis of confidence if we ever saw one. It remains to be seen whether talks with its lenders will resolve the debt burden or if New Star will become yet another victim of the credit crunch.
