New Star Profits Slump Amid Redemptions

New Star sees outflows across its range; revenues and profits drop.

Christopher J. Traulsen, CFA 29 August, 2008 | 12:51PM
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UK boutique asset manager New Star (link will open in a new window) released interim financial results today, and they are grim. The shop, which has endured a period of poor performance at many of its funds, saw profits dip sharply as investors pulled their money out.

The firm's diluted earnings per share for the first six months of 2007 fell to £3.50 from £9.23 in the year earlier period, a 63% drop. Operating earnings fell 37% versus the year earlier period, whilst operating earnings per share dropped 22%.

The group's assets under management shrunk by 14% during t

he first half of 2008, roughly 5% of which was due to redemptions, and 9% to depreciation of assets held by the firm's funds. The firm's UK domiciled retail fund range saw £307mn in net redemptions, whilst its Dublin-domiciled lineup suffered a net outflow of £402mn, leaving the international range with just £534mn overall. The firm's institutional range experienced £209mn in net outflows.

The results reflect generally poor performance across New Star's funds. Eighty per cent of all fund classes offered by the firm have underperformed their median Morningstar category peers over the past year through 31 July. Many of its most prominent offerings, including UK equity funds managed by Toby Thompson and Stephen Whittaker, have stumbled badly, as has Richard Pease's European Growth offering (though that fund's relative performance has strengthened recently).

The period is too short to be dispositive of much, but investors are clearly losing patience. New Star has taken some steps to right its ship, however, including hiring equity income specialist Charles Deptford from Barings (he subsequently replaced Stephen Whittaker at the helm of New Star Equity Income) and Trevor Green from RCM, and replacing Greg Kerr with Hitesh Thakrar on the struggling New Star Global Equity fund. The firm has also recruited a new chief investment risk officer, which would appear to be a necessary response to manage the elevated risk that burned the firm's portfolios in the credit crunch.

Whether any of this pays off remains to be seen. New Star chairman John Duffield, like many of his counterparts in the industry, is talking down near-term prospects, saying, "The trading environment remains difficult, and we do not expect conditions to improve in the near future."

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Christopher J. Traulsen, CFA  is director of fund research, Europe and Asia, Morningstar.