New Star buries ill-starred split-cap foray

While asset manager savages rivals, it sends liquidators into trust that lost £55m of investors' cash in two years. Jason Nissé reports

As the Financial Services Authority gears up its investigation into the split-capital trust scandal, New Star Asset Management is quietly putting into liquidation an ill-conceived foray into the sector which managed to lose around £55m in just two years.

The New Star Enhanced Income Trust is holding an extraordinary meeting on Tuesay 29 July when liquidators from KPMG are expected to be appointed.

The fund's collapse comes as New Star launches an advertising campaign criticising other fund managers for their performance. John Duffield, New Star's high-profile foun- der, attacked rivals last week, saying: "They have done a bloody awful job. It's an absolute disgrace."

The trust was launched by Mr Duffield's fast-moving fund manager in May 2001, when many trusts in the sector ran into trouble, attempting restructurings or even launching controversial rescue rights issues. Indeed, it made much of this in its prospectus, saying: "There are 10 split-capital trusts due to be wound up by the end of 2002. These companies have total assets of approximately £1.5bn. It is expected that this could lead to a significant amount of corporate action in the sector and present investment opportunities to the Group."

The New Star trust raised £58.5m from investors - £49.5m going into ordinary shares and £9m into Zero Dividend Preference Shares. Both share classes were placed at 100p, but soon fell. The shares were suspended at 1.75p for the ordinaries and 0.5p for the zeros. The trust borrowed £31.5m from the Bank of Scotland and has paid back all but £280,000, indicating it has lost over £55m of investors' money in two years.

A look at the trust's portfolio gives a clue to why it performed so badly. It invested in 19 split-capital trusts, buying two classes of shares in two of them. Of these, 11 trusts have had their shares suspended and face restructuring or liquidation, making New Star's investment virtually worthless. The remaining eight investments were worth only £165,504 when last valued three weeks ago.

As with many split-capital trusts, the shareholders bore a great similarity to the investors. Aberdeen Asset Management, which ran two of the suspended trusts New Star invested in, was its largest shareholder with 25.65 per cent. Britannic Asset Management held 9.72 per cent and New Star invested in two trusts, one of which has been suspended. Framlington held 9.49 per cent and New Star bought into two trusts, both of which are suspended. Similar cross-investment relationships exist with BC Asset Management, Leggmason Investors and Morley Fund Managers.

Both Mr Duffield and Philip Butt, New Star's head of investment trusts, are directors of the trust. However, management of the fund was delegated to James Ridgewell, who was just 27 when the fund was launched.

New Star received a fee of 2.25 per cent of assets, or £1.3m, at launch and then 1 per cent per annum, or £585,000. In addition, the firm charged the trust £50,000 a year for administration. New Star waived half its management fee from 1 April to 1 September 2002 and then waived all its fees.

In addition, New Star has said it will cover the cost of the liquidation and any outstanding bank debts up to a maximum of £400,00.

Neither Mr Duffield nor Mr Butt were available for comment. However, Howard Covington, a director of New Star, said: "It is fair to say we were probably more bullish about the prospects for the market and the split-capital sector than most people. Split- capital trusts are leveraged vehicles and they tend to lose more in bear markets."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Mortgage Advisor - OTE £95,000

£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

SThree: Trainee Recruitment Consultant

competitive: SThree: Are you passionate about sales?Do you have a keen interes...

Recruitment Genius: Loan Adviser - OTE £30,000

£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Day In a Page

Isis in Syria: Influential tribal leaders hold secret talks with Western powers and Gulf states over possibility of mobilising against militants

Tribal gathering

Influential clans in Syria have held secret talks with Western powers and Gulf states over the possibility of mobilising against Isis. But they are determined not to be pitted against each other
Gaza, a year on from Operation Protective Edge: A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians

Gaza, a year on from Operation Protective Edge

A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians
Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously

Illnesses, car crashes and suicides

Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously
Srebrenica 20 years after the genocide: Why the survivors need closure

Bosnia's genocide, 20 years on

No-one is admitting where the bodies are buried - literally and metaphorically
How Comic-Con can make or break a movie: From Batman vs Superman to Star Wars: Episode VII

Power of the geek Gods

Each year at Comic-Con in San Diego, Hollywood bosses nervously present blockbusters to the hallowed crowd. It can make or break a movie
What do strawberries and cream have to do with tennis?

Perfect match

What do strawberries and cream have to do with tennis?
10 best trays

Get carried away with 10 best trays

Serve with ceremony on a tray chic carrier
Wimbledon 2015: Team Murray firing on all cylinders for SW19 title assault

Team Murray firing on all cylinders for title assault

Coaches Amélie Mauresmo and Jonas Bjorkman aiming to make Scot Wimbledon champion again
Wimbledon 2015: Nick Bollettieri - Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!

Nick Bollettieri's Wimbledon Files

Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!
Ashes 2015: Angus Fraser's top 10 moments from previous series'

Angus Fraser's top 10 Ashes moments

He played in five series against Australia and covered more as a newspaper correspondent. From Waugh to Warne and Hick to Headley, here are his highlights
Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high