Blue Bay predicts profits will fall by 14 per cent

Shares in the fund management group Bluebay Asset Management plunged yesterday after it issued a surprise profits warning, blaming the "worst credit market conditions in many years" for its predicted 14 per cent drop in profits this year.

Bluebay, which is one of the largest 350 companies in Britain, said its pre-tax profits for year to the end of June were "likely to be lower than current market expectations". Rather than hitting its pre-tax profit forecast of £59.9m, its numbers were likely to be "broadly similar" to last year's £51.6m, it added.

Blue Bay said performance fees had fallen by 75 per cent in the second half of the year, to £4m in five months, compared to £18.2m in the second half of 2007. It has also been forced to freeze redemptions on one of its three hedge funds, to prevent investors withdrawing capital, although said in return it would cut management fees.

Hugh Willis, the group's chief executive, said: "Our current financial year has coincided with the worst credit market conditions seen in many years ... It is therefore unsurprising that performance fee generation for the period has been modest."

Its house broker, Credit Suisse, added that the warning "was not totally unexpected".

The market clearly felt differently as its shares fell 14 per cent to 283p as Bluebay became the worst performer on the FTSE All Share index.

However, the group's net inflows to the fund beat the $3bn forecast, posting inflows of $3.5bn with still a month to go before the end of the year.

Credit Suisse said: "In the long run this is more important to value generation."