John Duffield, the chairman of New Star Asset Management, said that there was no end in sight to the torrid conditions on the stock market as falls in share prices contributed to sending the group's assets under management below £20 billion in the first half.

The fund manager said that funds had fallen by £3.3 billion during the six months to June 30. The 14 per cent slide in assets put New Star's funds at £19.8 billion. It began the year running £23.1 billion of investors' funds.

New Star suffered a double blow when retail and institutional investors pulled out £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 the fund manager's fees and commissions sliding, with first-half operating profits down by 37 per cent to £30.3 million on net revenues down 16 per cent at £72.8 million. The interim dividend is being cut to 1p, from 4p last time.

New Star's shares fell more than 16 per cent, losing 20¼p to close at 102¼p. They have fallen almost 80 per cent since last July, when the credit crunch was kicking in and they traded at 480p.

Mr Duffield said that stock market conditions were the toughest for five years, but he remained confident that New Star could generate returns for its shareholders over the medium term. He said: “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.”

New Star has failed to stem a tide of client defections in recent months. Retail investors have withdrawn £307 million, while institutional funds have had a net outflow of £209 million and international retail funds a net outflow of £402 million since January.

The group was forced to mark down the value of its property funds, one of Britain's biggest portfolios, but allowed investors to withdraw funds last year, unlike many rivals, which suspended redemptions.

Mr Duffield has taken cost-cutting measures, including reducing staff through natural attrition. He has also put in place an incentive scheme of share-and-cash bonuses for key staff.

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