New Star taken over by banks
Investors with leading fund manager New Star have been told not to panic following five banks taking a majority stake in the firm.
Under the terms of the deal, New Star will de-list from the stockmarket and a banking syndicate - including HBOS, Lloyds TSB, HSBC, RBS and Bank of Australia - will take a stake of up to 95%.
The radical restructure the fund management group will see the banks receive £94 million of preference shares along with ordinary shares, which will give them control over 75% of the firm. In return, the banks have cleared £240 million of New Star’s £260 million debt.
The soon-to-be merged Lloyds-HBOS bank, in which the taxpayer will have around a 40% stake, is likely to own around 45% of New Star, while RBS - in which the taxpayer has a 58% stake - takes a 15% holding.
John Duffield, the founder and current chairman of New Star with a 5% stake in the company, says: "The cost of this restructuring is regrettably a substantial dilution for ordinary shareholders, including me. However, in current market conditions, we have to recognise that there is no other option to ensure the stability of the business."
Despite shareholders losing out as a result of the deal, retail investors with money in New Star funds have been urged not to panic.
Darius McDermott, managing director of Chelsea Financial Services, says the news should come as a relief to investors: “This deal will provide stability to the company; allow its fund managers to focus on the challenges ahead for their portfolios; and hopefully give New Star unit holders a good night’s sleep.”
Duffield says New Star recognises that some clients may have concerns about the firm’s levels of debt.
“We have taken this radical step to address these concerns completely and with one stroke,” he adds. “We are now free to focus all our attention on improving our investment performance.”
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.