Investors in New Star funds should not panic

Investors with funds managed by New Star Asset Management, which on Monday requested the suspension of its shares, are in no danger of losing their money.

New Star issued a statement saying it was in talks with its banks about a debt-for-equity swap that would leave the lenders owning a majority stake.

Financial advisers said private investors had nothing to panic about as assets held in unit trusts and open-ended investment companies are ring-fenced from the company.

“Their money is safe because unit trusts and Oeics are protected from the underlying company,” said Robert Harley, research analyst at Bestinvest.

He said the bigger concern was the negative sentiment towards the company, which is likely to trigger a run on funds in New Star investments.

“A wave of redemptions is going to be hitting those funds,” said Mr Harley. “The company will have to manage those redemptions in a way not to disadvantage shareholders.”

Recent poor performance by some of New Star’s fund managers has already resulted in a rise in redemptions by investors, which is likely to accelerate in coming days.