Buyers ready to catch New Star Asset Management as leading fund is put up for sale

Date: Wednesday, December 10, 2008
Author: Miles Costello, Times Online.co.uk

New Star Asset Management hoisted the “for sale” sign last night as the fund manager hired UBS, the Swiss investment bank, to handle preliminary bid approaches from trade buyers and private equity companies.

The move is understood to have been driven by New Star’s five-strong bank syndicate, which seized control of the struggling group last week in exchange for forgiving its £240 million debt pile. The syndicate, led by HBOS and Lloyds TSB, is thought to be expecting offers of at least £120 million for New Star.

Possible buyers include Aberdeen Asset Management, Neptune, Henderson, and Hellman & Friedman, the private equity group that owns Gartmore.

Speculation is also growing that some of New Star’s managers may launch a management buyout for the group, which remains one of the highest-profile names in the industry.

Insiders said last night that New Star’s bank owners would have to move quickly to lock in its highly paid team of “star” fund managers in order to prevent an exodus of key staff before any sale. As part of last week’s debt restructuring talks, New Star can make £6 million of preference shares available to its 30 to 40 most successful managers. The group also has a pot of cash to draw from in order to pay bonuses to its top performers, who include Tim Steer, who manages equity and hedge funds, and Richard Pease, in charge of the European growth fund.

However, it is understood that New Star has yet to agree firm details about remuneration packages for its best performers. “A lot of managers had equity, which is now worthless. No one knows how much anybody is getting. The banks need to move quickly,” one fund management executive said last night.

New Star said yesterday that it would press ahead with a proposed debt-for-equity swap and a delisting of its shares – which is slated for the end of January – but it is thought that the banks want to seal a sale before then. The fund manager has yet to hold formal takeover talks with any party, it said, emphasising that there was no certainty that a deal would be struck. UBS, New Star’s broker, was going through the process of being formally appointed as its financial adviser on a possible sale last night.

John Duffield, the company’s chairman, will leave at the end of the process. Mr Duffield set up New Star eight years ago, but it began to hit the buffers last year, shortly after it ran up an insurmountable debt bill to fund a £364 million return of capital to its shareholders. At the same time as that transaction, Mr Duffield banked £155 million after selling a big tranche of shares in the firm. As well as battling a sliding share price, New Star faced a wave of redemptions from institutional investors. Together, this cut its funds under management from £19.8 billion at the end of June to £13.9 billion at the end of last month. Mr Duffield held a 7 per cent stake in the manager but that is almost worthless after last week’s restructuring.

National Australia Bank, HSBC and Royal Bank of Scotland are also in the bank syndicate. They agreed to wipe off all but £20 million of New Star’s debts last week in exchange for taking on £94 million of preference shares and a controlling stake in the group. Whether the group is delisted or sold on to a new owner, existing shareholders will see their investments wiped out.

New Star’s shares, which have lost more than 90 per cent of their value since the beginning of the year, continued their slide yesterday, dropping more than 8.8 per cent to 1.55p.