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Star quality

Nicola York looks at how John Duffield has built New Star from scratch to a stellar fund giant and a much anticipated market flotation in less than five years

The catalyst for the creation of New Star was John Duffield’s acrimonious departure from Jupiter with the fallout from one star company leading to the birth of another.

Duffield set up Jupiter in 1986 and was chief executive for 14 years before quitting after a dispute with the company’s German parent Commerzbank over 80m which he claimed was owed to him and his colleagues.

It was alleged that Commerzbank agreed to the payment on the condition that Duffield resigned immediately. Seven directors on Jupiter’s board quit in protest when Duffield left although Michael Heathcoat-Amory later returned.

Duffield was trying to sue Commerzbank for unfair dismissal while Jupiter was trying to prevent him from setting up a new company, claiming that it could be a breach of contract.

Eventually, the row was settled and Jupiter paid Duffield 5m – half in cash with half paid into the John Duffield charitable trust. The deal also gave Duffield Jupiter’s 300m overseas portfolio as well as part of the Jupiter investment trust and gave him the go-ahead to recuit Jupiter fund manager Alan Miller for the New Star chief investment officer role but he was not allowed to poach any more Jupiter staff for six months.

Duffield’s aim was to create a fund house with “a dynamic and free-thinking environment”. New Star was born in July 2000, and is now one of the most successful fund firms in the UK.

In December 2000, New Star made its first acquisition of London-based global investment manager WorldInvest. In January 2001, Duffield recruited Jupiter European fund manager Richard Pease and, later, Stewart Cazier of Norwich Union Investment Funds as chief operating officer.

This was followed by the launch of two core retail products in July 2001 – Alan Miller’s UK growth fund and Richard Pease’s European growth fund. A third fund was launched in October 2001 – UK aggressive, managed by Tim Steer, who joined from Collins Stewart.

In the following month, New Star was in talks with Artemis about a merger. Artemis pulled out of the reputed 42m deal at the last minute due to fearsthat a merger would undermine its boutique culture.

New Star unleashed its fourth fund, higher income, in January 2002 in time for the Isa season with Toby Thompson, who joined from Newton Investment Management, in charge.

NSAM took in more than 500m in seven months. It raised 96.2m in the three-week offer period for its higher-income fund and 251m for its UK growth and European growth funds as well as 31m for the UK aggressive fund .

In May 2002, New Star recruited Invesco Perpetual UK manager Stephen Whittaker and M&G chief investment officer Theo- dora Zemek.

Whittaker replaced Alan Miller at the helm of UK growth which was valued at 200m. Miller moved within New Star to concentrate on hedge fund business.

Hargreaves Lansdown senior investment analyst Meera Patel says: “Duffield did the right thing by getting someone else in to run it. Duffield is quick to act and he is very pro-change and in this industry you need to be prepared for change all the time. The people who have not been successful are those who have not been willing to change with the times.”

May 2002 was a busy month for Duffield as he set up global investment funds, a Dublin-based Oeic, consisting of six actively managed funds. The Oeic aimed for capital growth and offered New Star Asian opportunities, European growth, global emerging markets, Japan recovery, UK dynamic and US opportunities funds. In the same month, the select opportunities fund, run by Patrick Evershed, was launched and took 47m in its first month.

Duffield made an audacious bid for Jupiter Asset Management in July 2002 which was rejected despite pledging to pay at least 50m more than the highest bidder.

At the time, New Star chief executive Howard Covington said: “It seems illogical that Commerzbank, which is supposed to be looking for the best cash price, does not want to deal with us.”

New Star made its bond fund debut in September 2002 – the high-yield bond fund.

Three acquisitions were made in 2003 with the purchase of Aberdeen Asset Management’s equity income and technology funds, Exeter Investment Group’s unit trust business and Edinburgh Fund Managers’ retail funds, bringing New Star into the fund of funds sector with the 1bn-plus Edinburgh Fof port- folio range.

By August 2004, New Star had attracted almost 5bn of retail assets since launch, with 4.7bn under manage-ment, making it the 16th-biggest independent UK retail fund manager. Six of the eight funds it had rolled out – including European growth and UK alpha funds – were in the first quartile of their sectors since their launch dates.

After disappointing performance of the UK growth fund, New Star merged the 8m fund of funds into its balanced 152.7m Fof portfolio.

In April this year, New Star announced it would be floating on the Alternative Investment Market in October after plans were put on hold in 2004 following poor performance of the equity markets.

The company floated last Friday, making millionaires of over 40 staff. Duffield owns 17 per cent of New Star, worth between 102m and 119m, and he does not intend to sell any shares.

But some have concerns about the flotation’s impact. Seven Investment Manage-ment director Justin Urqu-hart Stewart says: “Aim is designed as a smaller-company market for new, thrusting businesses to start and get tax breaks.

“I do not think that New Star falls into that category. Aim was designed with tax breaks to encourage it. I fear that what this might do is bring the attention of the Chancellor that some of the tax breaks will have to be looked at and it could spoil it as a market”

Urquhart Stewart says the float attracted a lot of interest because there are few fund firms of this size in the market and they do not come into the market often. He says: “If you are being slightly more cynical about it, they are very good at promotion.”

New Star continued to channel money into advertising while most other investment houses were cutting budgets as a result of the bear market. Urquhart Stewart says: “They had the money to go and expand when everyone else was weakened.

“They were in the right place at the right time and led by somebody who has got the entrepreneurial skills to take advantage of it.”

The latest ad campaign features photos of three of the firm’s star fund mana-gers, marking a move away from traditional fund promotions.

Urquhart Stewart cites the campaign as an example of the company’s effective marketing.

Another secret to Duffield’s success, says Patel, is his ambition. “I think it was his drive after the troubles that he had with Commerzbank and the whole Jupiter thing. I think that he just wanted to get his own back and prove to the world that he built Jupiter from a very small company and he could do it again with New Star.”

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