Tweet
Fund manager New Star has been forced to suspend dealings in a second unit trust after investors made huge withdrawals.
The crisis-hit group, which is up for sale, said it had reluctantly "temporarily suspended" its Heart of Africa fund, blaming an "increase in redemptions". Its International Property Fund was suspended last month.
This is the latest problem to hit New Star, which is struggling to find a new owner after it was weighed down with £240m of debt used to back a huge special dividend to chairman and founder John Duffield and other shareholders. New Star hired investment bank UBS this week to find a buyer - banks in effect own 95% of the shares after a debt-for-equity swap.
The suspended fund, which focuses on sub-Saharan Africa other than South Africa, was launched a year ago with a high-profile advertisement campaign aimed at financial advisers.
Despite warnings that the trust was high risk, investors poured in £88m, encouraged by Chinese demand for African minerals, the rising price of oil and what manager Jamie Allsop called "trickle down" - which would supposedly see African consumers moving from travelling on foot to bicycles and motor scooters.
Although the underlying performance shows the fund is down only 24% from launch and 35% from its peak in mid-June - largely in line with major markets - the fall of confidence in Duffield's firm has seen investors rushing for the exit.
Other funds have also been hit by outflows. The firm admitted it had lost £500m in the six weeks to November 30 and the rate of withdrawal is thought to have accelerated since.
At the end of October, the Heart of Africa fund was worth £58m. It has now halved to £29m after holders cashed in. Many are fearful of where New Star is headed - several top managers are likely to leave now that their share options are almost worthless.
Allsop blames a "confluence of factors" for the fund shutdown. "We have many holdings in Ghana and Nigeria which we have been unable to sell to meet redemptions due to liquidity issues," he said.
"We have 30% of the fund in Nigeria, where repatriation of money received from selling shares has been hit by restricted foreign exchange flows - we can't turn naira into dollars. It's the annual Hadj bank holiday. And Ghana's contested election has hit normal equity trading."
New Star hopes to resume trading in the fund before Christmas but has allowed for a 28-day freeze. Shares in New Star rose 1.3p to 3.1p yesterday - they stood at 240p a year ago - on rising hopes that a buyer for the firm will be found.
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
