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Survival of the fittest for Henderson-New Star managers

Key players in the asset management industry continue to play survival of the fittest and vie against one another for existence. Last Friday, Henderson became one of the arguably ‘fitter’ firms likely to prevail as it swooped in on rival firm New Star with a £115m bid.

The proposed takeover will propel Henderson to new heights as one of the top five players in terms of funds under management with assets totaling £15.4bn.
Henderson chief executive Andrew Formica has vowed to keep the New Star brand alive despite its recent problems with the dual tag of “Henderson New Star” cited as his rebrand preference.

The chief executive says the merger of the two companies will take place in March with full integration to be completed by the end of 2009.

Formica anticipates further outflows from New Star over the coming year and has already factored in “25 per cent of attrition” ahead of the deal. He has also struck an attractive deal to protect shareholders from continuing redemptions up until the deal’s completion in March. If New Star assets drop by 10 per cent £5m will be knocked off the price tag and £20m will be cut if they fall by more than 20 per cent.

Though New Star founder John Duffield and current chief executive Howard Covington are expected to leave the firm upon completion of the deal, questions remain over what Henderson will need to do to retain New Star’s stellar performers.

Formica is confident that key managers such as Richard Pease, Tim Steer and Guy de Blonay would remain with the firm, referring to the latter as “one of the top two financial managers in the market place.” However, he couldn’t rule out departures on the Henderson side.
However, New Star’s leading managers are expected to be subjected to lock-ins, at least in the short-term with cash bonuses to sweeten their stay after a mixed response to recent equity bonus incentives.

Henderson and its third parties intend to retain 150 of New Star’s 300-strong workforce with 75 staff in sales, distribution and fund management joining Henderson and a similar number employed by its third parties.

Initial adviser reaction to the deal was largely positive but some suggest the merging of the two businesses will inevitably see some forced departures.

So who will stay and who will go? With the merging of two businesses, performance figures will undoubtedly be under scrutiny.

Chelsea Financial Services managing director Darius McDermott says: “I would expect around half of the staff at New Star and some of the Henderson managers to leave also. You look at multi-manager and think both are big players so ultimately one team will stay and another go. UK equity income is also of interest with the Henderson and New Star offerings sitting right at the bottom of the performance tables over three years.”

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