New Star eyes up Exeter unit trusts

New Star Asset Management is in talks to buy the unit trust business of Exeter Investment Group, a provider of controversial split capital investment trusts, in a deal worth £9m.

New Star has been speaking to Exeter about the deal since June and is expected to wrap it up in the next few weeks. A spokesman for Exeter confirmed it had received an approach which might lead to an offer, but refused to comment on the parties it has been in talks with.

City sources say New Star initially offered £9m for the company's unit trust business - which currently has just under £300m of assets under management - with an additional consideration of about £900,000 later.

Exeter is one of the companies which has been forced to hand over information about the split cap trusts it ran to the Financial Services Authority as part of the FSA's intensive investigation into whether the products were mis-sold.

The FSA is also probing companies to establish whether or not a "magic circle" of fund managers cross-invested in each others' trusts in order to keep their share prices artificially high. Exeter, which marketed splits through intermediaries rather than selling them directly to the public, has made no provisions to fund potential compensation claims. A spokesman said the company believed it had acted with "probity and integrity" and that it would defend itself against any claims.

If New Star does buy Exeter, it will take on more than 10 unit trusts that had holdings in split capital funds. It is not clear if New Star's potential deal would insulate it from taking on any claims that Exeter does find itself liable for.

Exeter's remaining business would include its investment trust portfolio and a third-party administration business for unit trusts and other funds which do not want to manage their own accounts.

New Star has been keen to boost its presence in the retail investment market and has scrutinised most asset managers currently on the market.

Earlier this year New Star paid £92.5m for £1.7bn unit trusts assets managed by Aberdeen Asset Management, another company heavily embroiled in the split cap debacle.