Fears for the health of John Duffield's New Star Asset Management grew today, as the company scrambled to rejig its debt mountain and admitted that investors are withdrawing money at an alarming rate.

Rumours the bank was close to breaching banking covenants have circulated for months. Today New Star said debt payments had been “amended to better accommodate the current unsettled trading environment”.

With stock markets in turmoil and investors reluctant to take chances, all fund managers have been hit.

New Star's woes seem particularly intense however — in the last year its shares have tumbled from above 450p to just 31p this morning.
That leaves the company valued at £83 million, with debts of £220 million. Although this loan doesn't have to be repaid until 2013, it has been forced to agree a new deal that increases the interest rate on the debt by 1.5% even as Bank rates fall.

New Star was founded by Duffield and floated in 2006 at 250p, making millionaires of about 50 staff. Duffield was already fabulously rich, having built Jupiter Asset Management into a top manager of unit and investment trusts aimed at the retail investor.

New Star's assets under management are sinking, as investors cash out. Its funds have fallen by £6 billion to £14.3 billion in just a few months.
This has made it take drastic action, beginning a shake-up of the business aimed at saving annual costs of £20 million. Job cuts were not specified or seem likely. Duffield said: “The fall in markets since the summer and increased redemptions across the asset management sector have had a significant impact... Our banks understand our position and are supportive.”

The chairman is one of the leading lights of the fund management industry, held in esteem by some but regarded as a bully by others. His departure from Jupiter came after one of the worst rows the City has seen, with Duffield referring to his bosses at parent group Commerzbank as “the Gestapo”.

He has been trying for months to get a grip on New Star's fund performance, after admitting that some of his best managers misjudged the market. Some of his top funds have badly underperformed rivals, due to making bad bets on banks, property and oil.