New Star Asset Management revealed yesterday that almost £3bn in assets had been pulled from the fund manager in less than three months as clients sought safer investments.
The group, which was set up by legendary fund manager John Duffield and made millionaires of a number of its employees when it listed seven years ago, said that client assets had fallen by £2.8bn to £20.3bn since the start of the year.
Customers have taken out £600m while the remainder of the decline was caused by falling stock markets.
Mr Duffield, who is the company chairman, said "the second half of 2007 and the start of 2008, have been the most difficult period for New Star since we began trading in 2001" and added that "he expects 2008 as a whole to be a year of consolidation for our business".
The company said some of its European and UK mutual funds were poorly positioned for the stock market turmoil in the second half of last year, while the group had also been hurt by the drop in commercial property prices. The group slashed its total annual dividend by 44 per cent from 9p to 5p. However, Mr Duffield said that while the trading environment remains challenging there are early signs that "conditions aren't deteriorating".
Despite the difficult conditions, the group reported a 36 per cent increase in operating profits to £98.1m for the year to the end of December, slightly ahead of analysts' expectations.
Shares in the company, which have fallen from a high of 500p, rose 7 per cent, up 6.25p at 91.25p, yesterday, which analysts put down to there being no nasty surprises in the results. In January, New Star warned that 2008 profits would be sharply lower than last year, which sent its shares down by a third.
"There may be some relief on costs and the outflows in Europe are not quite as bad as our worst case scenario," said analyst Jason Streets at broker Evolution.
The group also unveiled plans to introduce a new long-term incentive plan for its 35 most senior employees, along with a cash bonus scheme which would apply to most staff. The performance scheme for the top staff will be based on sales and profits targets and investment performance, New Star said.
The group has recruited John Tiner, the former chief executive of the FSA, to the board as a non-executive director in a move that is expected to give some confidence back to investors. New Star has also made changes to a number of managers at some of its funds, including the UK Special Situations fund.
The company's clients typically earn six or seven figure salaries and invest money in its equity and property funds to earn an income and capital growth over time.Reuse content