New Star profits up 90 per cent on property and bonds success

Profits at New Star Asset Management, the AIM-listed fund manager founded by John Duffield, rose more than 90 per cent to £30.5m during the first half, as retail investors continued to pour money into the company's property and bond funds.

The group's assets under management rose 7 per cent to £18bn over the period, with most of the new money accounted for by higher-margin retail investors, rather than institutions.

The chief executive, Howard Covington, said the group had temporarily stopped taking money into its US institutional business after volumes had become unmanageable. Although about half of the group's £18bn of assets are accounted for by institutions, only 30 per cent of new business during the first half came from this sector.

Having made a series of acquisitions over the past few years, building up the business to become one of the major forces in the UK fund management industry, Mr Covington said the company had now turned its focus to organic growth.

"We certainly don't see ourselves doing [any more deals] at the moment," he said. "The business is growing incredibly well organically. Also, we made all our acquisitions when assets were cheap. Fund managers are a lot more expensive now."

The company announced its first interim dividend yesterday - of 4p - and said it expected to pay a total dividend for the year of no less than 8p. Mr Covington said the group would continue to return surplus cash to shareholders via dividends and share buy-backs.

Although equity markets have calmed down in 2006 - with the FTSE 100 up only 4 per cent since the start of the year - the group said it expected to prosper in the second half due to the increasing number of investors turning to property and bonds. The group's property and bond funds now account for 75 per cent of its inflows.

Since the company listed on the Alternative Investment Market last November, its shares have risen 75 per cent. However, the stock fell more than 7 per cent yesterday as investors took profits. It closed the day down 31p at 384p.

The group plans to graduate from AIM to the main London market during the second half of next year.

New Star was founded by City entrepreneur John Duffield five years ago, after he left his former fund management operation Jupiter when he fell out with its owners, Commerzbank. Jupiter is now up for sale. However, Commerzbank is reputed to have made it clear to New Star that it will not consider an offer from them, due to its poor relations with Mr Duffield.