James Daley: New Star's big names lose their lustre

John Duffield, the flamboyant founder of New Star Asset Management, has been re-learning some harsh lessons lately about just what happens when you promise the earth and don't deliver it.

Over the past 12 months, performance across the majority of New Star's funds has been absolutely dire, with customers withdrawing money in their droves and financial advisers being forced to question the loyalty they have shown to the company for the first time since it was established six-and-a-half years ago.

A quick browse around the group's website reveals that around one-third of the group's retail funds are currently in the bottom 25 per cent of performers in their sectors over the past year, while just five rank in the top quartile.

Furthermore, and somewhat alarmingly, many of the fund managers whose performances have been worst are the most experienced and seasoned managers of the lot.

Richard Pease, the director of European equities; Stephen Whittaker, the company's chief investment officer; Toby Thompson, the manager of the Higher Income fund; and Patrick Evershed, the highly respected veteran fund manager, are four of the biggest names in the fund management industry today – yet each of their funds ranks amongst the very worst performers in their respective sectors over the past year.

So what's the reason behind New Star's rot? It's one thing for a fund management house to have a few bad eggs in their basket, but when you find that there are only a few left that are not starting to stink, you have to begin wondering whether there is something in the water in Knightsbridge (where New Star's plush offices are).

The Save & Spend columnist Mark Dampier has suggested that it may be because the managers barely speak to each other. Unlike most fund management houses, New Star is all about the individuals – hiring those with the best track records, and leaving them to get on with it.

Elsewhere, however – even in other institutions which also subscribe to the so-called "star" fund management model – the managers tend to at least talk to each other on a regular basis, sometimes in daily conferences, sharing views and engaging in healthy debates about where markets are going.

Another potential issue, in my opinion, could be the way the managers are remunerated. Unlike other houses, where pay is linked directly to their funds' performance, the managers at New Star have always been paid low-ish basic salaries, but promised much more via shares and options in the company. They were finally given the chance to cash in a slug of these when the business floated two years ago, and have been given another fairly large slug or two since.

Unfortunately, over the past six months, New Star's share price – and hence the value of many managers' share packages – has been chopped in five. Hence, after cashing in the large windfalls that they'd spent several years waiting for, they then discovered that the value of their remaining shares and options was 80 per cent less than they had bargained for.

As Theo Zemek, the head of the company's corporate bond team, proved when she defected to Axa last month, New Star's managers are no longer too expensive to be poached – and have far less incentive than they did in their day-to-day work.

I'm told that Duffield has some changes in the pipeline, and if history is anything to go by, heads are sure to roll. But will he have the guts to sack the likes of Pease, Whittaker and Thompson – names on which he built the company? Given that he had the courage to fire his long-time friend Alan Miller after his fund failed to perform a few years ago, I wouldn't rule it out.

Nevertheless, in my opinion, more firings are not the answer. Financial markets are now more complex than they once were, and being a superhero is no longer as easy. Is it possible that New Star's model is starting to go out of date?

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
i100This Instagram photo does not prove Russian army is in Ukraine
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Morrissey pictured in 2013
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Field of broken dreams: Andy Bell visits Passchendaele
news5 News's Andy Bell visited the killing fields of the Great War, and his ancestor - known only from his compelling war diary - came to life
i100  ... he was into holy war way before it was on trend
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In my grandfather's First World War footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during the war. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

    Can we learn to love Ryanair again?

    Four recent travellers give their verdicts on the carrier's improved customer service
    Billionaire founder of Spanx launches range of jeans that offers

    Spanx launches range of jeans

    The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

    Commonwealth Games

    David Millar ready to serve up gold for his beloved Scotland in the end