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One of Britain's most high profile unit trusts, New Star's £675m International Property fund, was yesterday forced to close its doors to withdrawals after it admitted it no longer had sufficient cash reserves to meet demands from investors.
The fund was launched only 18 months ago, in a blitz of billboard advertising featuring skyscrapers around the globe. The fund promised a "world of new investment opportunities" but thousands of small investors who poured their savings into the fund will now be denied access to their money after its suspension yesterday.
Shares in New Star Asset Management, run by maverick entrepreneur John Duffield, plunged 33% as news of the suspension was released. The group, which last week saw its co-chief investment officer Stephen Whittaker quit, was yesterday valued at 16p a share compared with 519p just before the launch of the International Property fund in June 2007.
Cash levels held to meet redemptions in the International Property fund fell precipitously from 29% in October to 16% at the start of November, after a wave of withdrawals led by big institutional investors. New Star yesterday declined to say how much cash buffer it now has left, or when the fund will re-open, although it is understood that investors will not be able to withdraw their money before the new year at the earliest.
Asset sales to restore cash levels in the fund are now expected, though yesterday the fund's manager, Stuart Webster, said there would be no firesale of properties. "There are not going to be any quick sales for the sake of it. This is a good fund which is going to see good returns." The fund is invested in commercial property across the globe, with a bias towards Singapore, Japan and Australia. But commercial property values are now falling as the recession deepens.
The suspension is initially for 28 days, but the company will consult the fund's trustees, Royal Bank of Scotland, and the Financial Services Authority to extend the suspension.
Gavin Haynes, managing director of financial advisers Whitechurch Securities, sold about £1m of units in New Star International Property during October.
"The suspension of the fund will obviously be a concern for investors, although we have always said there are risks of investing in bricks-and-mortar funds that have limited liquidity. "
New Star's larger UK-invested Property fund is unaffected by the suspension of the international fund. A wave of UK property funds were suspended this year but this is the first time that a major retail unit trust has been forced to close its doors.
This month New Star revealed that it had renegotiated its banking covenants and that assets under management had fallen to about £14.3bn from £19.8bn at the end of June. Performance of many of the firm's leading funds have been among the worst in the fund management industry. Of the 935 UK funds listed by Trustnet.com, five New Star funds come in at 830 or lower over one year. The group is weighed down by high borrowings taken on when it returned £364m to shareholders during 2007.
The group's £236m of debt - more than five times the market value has just been refinanced, but at a higher interest cost. Speculation is now growing that New Star may be taken over by a predator such as Aberdeen Asset Management, although the high debt levels may deter bids.
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