Uncertainty prompts firms to put New Star funds on hold

Several large wealth managers and IFAs have moved New Star funds on to their hold lists following the group’s restructuring.

Brewin Dolphin did not have any New Star funds as a buy before the asset manager’s corporate problems. This was because of performance problems on some funds. However, those clients that do have New Star funds have been advised to move into recommended alternatives.

Matthew Butcher, head of fund research at Brewins, says some of his clients had High Yield Bond, Global Financials, and International Property, which has suspended trading.

“New Star redemptions are happening anyway on the back of poor performance, but the corporate situation is not helping. Investor risk appetite is low and New Star equity funds will be the first to be sold. People will be looking at their portfolios wondering why they are still holding these funds,” he says.

Uncertainty about New Star’s top managers is also a concern, Butcher adds, despite a new incentive scheme designed to retain senior staff.

Meanwhile, Citi Quilter and Kleinwort Benson are rumoured to have advised their clients to sell all New Star holdings. Previously, Kleinwort had a single New Star fund on its buy list: Guy de Blonay’s Global Financials fund. Both groups refused to comment.

Hargreaves Lansdown and Bestinvest both removed New Star funds from their buy lists last week. Informed Choice is not advising clients to sell, but is no longer recommending them, while Chelsea Financial has the funds on hold until the group’s future becomes clearer.

Justine Fearns, head of investment research at AWD Chase de Vere, says: “We are not saying sell, sell, sell. We have decided to put them all on hold, so no new money is going into New Star funds. There has been some poor performance, but we based the decision on turmoil at the corporate level, and the fear factor from clients and investors.”

Last week, New Star’s creditors agreed to a debt-equity swap that will see the bank syndicate own 75% of the company. The move will result in £240m of its £260m gross debt being converted to equity in the business. New Star’s share price hit a 52-week low of 0.5p last Thursday.