Shooting stars: the mighty fund managers that have crashed down to earth

Back in 2001, a story ran that New Star Asset Management and Artemis, two of the darlings of the City fund management arena, were in talks to join forces. They didn't. But in the following years the pair prospered.

John Duffield, founder of New Star, has had plenty of critics. His abrasive and confrontational style – he once branded Commerzbank, his paymaster in the 1990s when he was at Jupiter, "Nazi bastards" – has created enemies in fund management and beyond.

He said earlier this year that senior managers wouldn't be getting a single penny more in their salaries this year – not even a cost-of-living increase. Not exactly the best way to attract talent. Meanwhile, other fund managers have loathed New Star for its showy adverts championing its own stars.

Plenty more mud has been slung in his direction, with a surfeit of tall tales being spawned. But up until the end of last year, few could deny the incredible success of New Star.

When it came to market in late 2005, the company's shares soared by nearly a quarter on the first day of trading. With around 60 per cent of New Star owned by the staff, it was bonanza time. Duffield's secretary at the time is thought to have become a paper millionaire.

In just a five-year period up to the float, Duffield grew assets under management at the firm to £15bn.

At the time, these pages described the ascent of New Star as the "biggest success story of the sector since the turn of the century".

But the fall from grace has been startling. In January the company issued a profit warning and also slashed its dividend.

According to financial publisher Citywire, investors in the company's funds have endured some pain too. New Star has 20 managers in the bottom performance quartile in their respective sectors over the past year.

Last Friday's unveiling of a rather desperate looking and very expensive incentive package to retain its managers shows the extent of the decline. Duffield has been forced to issue £47m worth of new shares to fund the scheme – a move that he claims has the backing of nearly a third of the firm's shareholder base.

These are the same investors who have seen the value of their stakes collapse in the past year by around 70 per cent. Clearly an understanding bunch.

Sensibly Duffield, along with his chief executive, Howard Covington, are not participating in the scheme – maybe learning a PR trick from BA's Willie Walsh.

Artemis has, like New Star, been seen as a marketing-led machine that has delivered strong performance for investors over the past few years. But now it is also struggling. As of March 2008, the Mark Tyndall-led group managed £14.7bn worth of assets; last September that figure was nearly £16.3bn.

Belgian bank Fortis, which ended up acquiring a stake in Artemis as part of its deal to buy parts of ABN Amro, has put its holding up for sale. So far there are no takers – although last Friday talk that the bank had cut its asking price for the manager is believed to have stoked interest.

Artemis's own management is thought to want to buy out Fortis, but so far attempts to secure funding have failed.

Other fund managers are now in play, with the likes of Liontrust looking cheap and the subject of a bid.

City sources have suggested that the private equity backers of Jupiter – TA Associates, and Hellman & Friedman – which owns a stake in Gartmore – have had tentative discussions about a possible tie-up. Henderson is believed to have a cash pile that could be put to work to scoop up cheaper assets, while the rumour mill has suggested that JO Hambro, the boutique fund manager, could be looking to realise some cash after abandoning its public listing last year.

These are tough times for fund managers, but for the smart operators there could be plenty of bargains on display. In the next few months we'll find out who has been snapped up.

Lord Turner will need all his nous to fire up the FSA

So now we know that Lord Turner has been given the explosive brief of chairman of the Financial Services Authority. He is certainly a canny operator, though he hasn't endeared himself to all with his brand of "intellectual arrogance". But unlike his predecessor, Sir Callum McCarthy, Lord Turner has the political nous needed to head a regulator that finds itself sitting uneasily in the spotlight.

He has shown himself adept at politicking, having been on the end of some nasty Treasury briefings when he put together his 2005 pensions report. He has also been described as a strategy rather than a detail man, and he'll need both to overhaul the ailing FSA as it wakes up from its slumbers.

His appointment takes some strain off the recruitment team at No 11, which now has less than a month to replace the outgoing Bank of England deputy Governor Rachel Lomax. The position of valuer of Northern Rock's shares is still vacant too.

Scotland can tell a financial services success story. So why ruin the plot?

Scotland's reputation for financial prudence has taken something of a battering in recent times, what with its two biggest companies, HBOS and Royal Bank of Scotland, forced to go cap in hand to their shareholders for a total of £16bn.

A pair of flip-flopping Scots at Number 10 and 11 hasn't helped much either. So the timing of Scotland's first financial services week, championing all things that are good about the sector, was interestingly timed.

There has always been a thriving financial base in Edinburgh, but an hour down the road, Glasgow has been enjoying a renaissance. Banking heavyweights such as Morgan Stanley, JPMorgan and BNP Paribas have sizeable operations in the city, beating off competition from Asia and Eastern Europe.

The financial services sector accounts for around 7 per cent of GDP and nearly one in 10 jobs in Scotland. Estimates suggest that it also accounts for a whopping 19 per cent of total service exports for the country.

But a shadow has been cast over proceedings. The arrival of the Scottish Nationalists at the helm of Parliament is worrying many in the sector.

First Minister Alex Salmond might have strutted his stuff in the reflected glory of the industry's success, but the talk of a local income tax hitting Edinburgh's status as a major financial centre has dominated the chatter among delegates.

The continued success of the capital is wholly reliant on capturing, and perhaps more importantly retaining, the talent upon which the city's reputation has been founded. The lure of a better quality of life will tempt some from London's Square Mile, but a widening of the pay differential between Edinburgh and other major centres would be a disaster for Scotland.

Plans to introduce such a tax are likely to be some way off. Even so, it was a shame it marred the success story that is Scotland's financial services industry. Politics and sense are often uneasy bedfellows. Let's hope they find each other in this case.

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