New Star Renegotiates Loans as AUM Shrinks

New Star looks to cut costs through restructure. Assets under management down £5.5bn.

Morningstar.co.uk Editors 14 November, 2008 | 2:52PM
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UK investment firm New Star Asset Management has seen assets under management shrink by more than £5bn between July and the 13 November. The group, founded by John Duffield, said its assets under management as of 30 September were £16.7bn, down from £19.8bn at the end of June. But over October the amount slipped further and as of yesterday the group said assets under management were £14.3bn. These assets include those managed on behalf of the UK’s Family Assurance Friendly Society.

Although the group attributes much of the drop to the fall in asset values, £1.8bn, it has also seen large redemptions from its funds. Net outflows of assets since 30 September were approximately £523m, £316m of came out of its retail mutual funds while £155m was from external hedge fund investors and £89m w

as withdrawn from institutional funds.

The rate of redemptions from UK mutual funds has increased in recent weeks as retail investors have reduced risk in reaction to the high volatility of the capital markets, Duffield said.

New Star has renegotiated its loan agreement with its lenders in light of the current unsettled trading environment. As a consequence the interest rate on New Star's debt has increased by 1.5% although it remains repayable in a single payment in June 2013. Despite speculation concerning the firm’s loans, New Star has not at any time been in breach of its financial covenants, the group stated.

The fund management company has said it now intends to restructure its business and reduce costs.

Duffield, chairman of New Star, said: "We currently believe the exceptional risk aversion among investors may persist for some time, posing further challenges for fund management companies over the short term.”

However, he said the longer-term prospects for asset managers remain intact as a result of the secular trends towards increased savings and investment flows in both the developed and the emerging markets.

As of 2pm today, the share price of the small-cap listed company was up more than 1.70%.

Morningstar and Hemscott are now one company. You can see the original version of this article on Hemscott.com.

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