How are the mighty fallen.

Today's talks over a £240 million debt-for-equity swap at New Star Asset Management mark a bitter blow for John Duffield, one of the most charasmatic figures in fund management and the City.

It now seems almost certain that Mr Duffield, who founded New Star in 2002 and floated it just three years later, will lose control of the company he has built and nurtured so lovingly over the years.

Mr Duffield, 69, set up New Star after selling his previous incarnation, Jupiter, to his former employers at Germany's Commerzbank.

At its £700 million November 2005 stock market debut, New Star was priced at 225p, and was the year's biggest float on AIM.

Today, after the firm's request for a suspension was snubbed by the Financial Services Authority, the shares had dropped to 5.25p, valuing the troubled company at just £14.1 million.

New Star's flamboyant chairman, who owns about 7 per cent of the company, will find himself massively diluted alongside other shareholders when its five lending banks take control of its equity in exchange for assuming the burdensome debt.

Predators are also bound to circle now the debt poison pill is about to be removed.

Informal talks have already taken place with Hellman & Friedman and Mr Duffield's old friend Martin Gilbert, who runs Aberdeen Asset Management, might also be tempted.

New Star's banks were spurred into action after it moved last week to suspend redemptions in its flagship International Property fund.

The banks were worried that more suspensions might follow and as institutions formed a queue to quit the otherwise very healthy fund.

New Star now has to act quickly to try to retain its fund managers as well as convincing the institutions to stay on board.

To some extent, Mr Duffield can be accused of being the architect of his own demise.

New Star took on its unparalled debt weight last April, just as the credit crunch was kicking in, in order to facilitate a return of capital to shareholders, including Mr Duffield.

Mr Duffield, and trusts representing his family interests, sold down their stakeholdings at the time to 12.5 per cent, raising about £155 million.

It will be of little comfort to Mr Duffield that he got some of his money out before the market trauma took hold. The loss of his business will be far more painful.

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