Market turmoil hits funds at New Star and RAB Capital

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Market turmoil visited two of the UK's leading fund managers yesterday, dampening the mood at New Star Asset Management, which saw the value of its property portfolio plunge, and RAB Capital, which issued a profit warning.

New Star said adverse sentiment in the commercial property market had cut the value of its property fund by 8.2 per cent. The downgrade follows a 9.6 per cent loss in value over the past four months, taking the total capital loss at the fund to 17.8 per cent since the end of July.

The fund, one of the UK's largest retail property investment funds, has suffered since the onset of the credit crunch, dropping in value from around 2bn to about 1.7bn. Earlier this year, the fund whose portfolio includes properties such as Governor's House, Gracechurch Street and Staples Corner in London was forced to change its pricing structure to stem outflows, as investors looked to cash in their holdings.

A statement from the company said: "The relative scarcity of transactions has made the task of valuing commercial property more difficult. In recent days, sentiment has deteriorated sharply, partly as a result of the publicity given to redemptions from open-ended commercial property funds. This has stimulated further redemptions and heightened concerns about the liquidity of these funds."

It added: "The fund's property portfolio is being valued at least twice each month until the property market returns to a more stable state."

New Star's woes were supplemented by an unhappy trading statement from RAB Capital, the hedge fund group that has lost an estimated 72m betting on the rescue of Northern Rock.

RAB said difficult trading conditions in November would "impact on ... overall profitability". The company, which counts Lakshmi Mittal's family among its investors, said its full-year profit is likely to be at "the lower end of market expectations". It also voiced uncertainty about the future, saying "the eventual outcome for the year will be dependent on trading conditions for December".

Andrew Shepherd-Barron, an equities analyst at KBC Peel Hunt, said he was not surprised by RAB's statement. "It's that sort of market. If you look at it only on a month-by-month basis, then a few months ago I would have been upbeat and today I would be downbeat. Their profits will be hit, yes, but I remain optimistic about the company. The important thing in this industry is whether or not you can attract money and they can."

Shares in New Star shed 6p to 238p. RAB Capital fell 0.5p to 80.5p.