Shares in New Star Asset Management today fell 16 per cent after it slashed its dividend and a rush of departing retail investors pushed assets under management below £20 billion for the first half.

John Duffield, chairman of New Star, said there was no end in sight for turbulent conditions on the stock market and revealed assets under management fell by £3.3 billion in the six months to June 30, a 14 per slide that put New Star's funds at £19.8 billion.

It began the year with £23.1 billion of investors' funds.

The company suffered a double whammy as retail and institutional investors pulled £1.1 billion of assets and market falls wiped a further £2.2 billion off the value of the portfolio during the first six months of the year.

The drop in assets sent fees and commissions at the fund manager sliding, with first-half operating profits down 37 per cent to £30.3 million and net revenues down 16 per cent at £72.8 million.

New Star slashed the interim dividend from 4p last year to 1p, sending its shares down more than 16 per cent, losing 20.25p to 102.25p.

Shares in New Star have fallen almost 80 per cent since last July as the credit crunch was taking hold, when they were changing hands for more than 480p each.

Mr Duffield said stock market conditions were the toughest for five years but said he remained confident the group could generate returns for its shareholders over the medium term.

"This is a difficult time for most financial services firms and New Star is no exception. We do not expect conditions to improve significantly in the immediate future," Mr Duffield said.

New Star has failed to stem a tide of client defections in recent months.

Retail investors have pulled £307 million, while institutional funds made a net £209 million of redemptions and the international funds lost £402 million since January.

The business was forced to mark down the value of its property funds, one of the UK's biggest portfolios, but held the fund open last year, unlike rivals which suspended redemptions.

Mr Duffield has taken several cost-cutting measures as New Star braces itself against the market storm, including cutting staff numbers through natural attrition.

As well as recruiting a chief investment risk officer, he said he still expected to make select investment hires over the coming months.

Mr Duffield has put in place a new incentive scheme designed to lock in key staff with share and cash bonuses.

A bright spot in today's otherwise bleak assessment was the performance of New Star's hedge fund operations. Its Gemini fund returned 14.8 per cent to investors, while the Apollo fund delivered 11.2 per cent.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax