PRIVATE-EQUITY firms and investment groups are circling New Star Asset Management after the fund manager issued a shock profit warning and slashed its dividend.

Potential buyers are expected to start examining bids as early as this week after the warning sparked a 31% dive in the share price and wiped £106m off the group’s value.

New Star, set up by City heavyweight John Duffield, is now worth only £236m after a disastrous 77% fall in its share price in the past six months.

It is thought to have received two informal takeover approaches in recent weeks, but these were rebuffed. However, the group is now likely to be a target for a long line of potential bidders.

These could include Candover, the private-equity group that was pipped in the battle to back a management buyout of fund manager Jupiter last year. Apax Partners is also known to be interested in financial services and fund-management deals. Bankers said that JC Flowers, the American group, could also be in the frame.

Some industry executives say US group Hellman & Friedman could look at merging New Star with Gartmore, the British fund manager it bought in 2006.

Hellman is thought to have looked at floating Gartmore, which is worth well over £1 billion, in the first quarter of this year. The plan has been delayed by the uncertain financial markets. One possibility would be to reverse Gartmore into New Star, but sources said Hellman was not interested in bidding so far.

Aberdeen Asset Management, the £860m group led by aggressive dealmaker Martin Gilbert, is also likely to consider a bid.

However, a takeover of New Star would mark a return for Aberdeen to running retail funds – an area it quit following its involvement in the split-capital investment funds scandal.

Duffield, who holds an 11.9% stake in New Star, is believed to be reluctant to sell the business at these levels. Staff also hold a 29.5% stake allowing them in effect to block a deal going through.

In a trading update on Friday, New Star revealed that funds under management had tumbled by 6.5% to £23.1 billion in the six months to the end of December.

The crash in the share price has led to calls from some investors for a shake-up of the management, including the departure of chief executive Howard Covington.

New Star has been hit by investors withdrawing their savings from the group’s UK property fund. The warning also revealed that the majority of its UK and European unit trusts had “significantly underperformed” their peers. The firm is particularly vulnerable when markets fall as many of its funds are highly leveraged.

New Star’s decision to slash the dividend to 5p from the 9p forecast in April is designed to preserve cash as the group expects further falls in UK shares.

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