Almost £110 million was wiped off the value of New Star Asset Management yesterday after it issued a profit warning and cut its dividend amid wider panic that retail investors were losing millions in commercial property funds.

John Duffield, the founder of the high-profile fund manager, saw £17 million wiped off the value of his stake after New Star plummeted by more than 31 per cent to close at 101¼p.

The trading update, published in advance of preliminary results due on March 20, gave warning that New Star’s UK and European equity funds had underperformed and that its property funds had been hit by a downturn in the commercial market.

New Star will pay a 2007 dividend of 5p per share, down from the 9p forecast in April.

Investors withdrew £500 million from New Star’s management in the second half of 2007, including about £300 million from the £1.5 billion UK Property Unit Trust, one of the property funds most favoured by retail investors.

New Star’s value has fallen by more than 77 per cent in the past six months as fears increased over the climate in commercial property.

It also emerged yesterday that Scottish Equitable had halted withdrawals from its £2 billion property fund to prevent damage to its “buffer” – the layer of cash and equities held by funds so that they can pay withdrawing investors without selling assets.

New Star has retained a 20 per cent buffer on its property fund. M&G, the fund manager owned by Prudential, said that it had a 10 per cent buffer, while Norwich Union’s property trust has about 6.5 per cent in cash. The redemption terms on their funds have not been changed.

Howard Covington, chief executive of New Star, said that outflows from the fund manager’s property fund had “slowed right down” in 2008. He said that the property market had slumped but there was a good chance of recovery. “We see a lot of interest from property professionals in buying commercial property right now,” Mr Covington said.

Brian Dennehy, managing director of Dennehy Weller, the investment adviser, said that Mr Duffield’s reputation meant that he retained the confidence of investors. Mr Dennehy said: “He’s always been very clear that he would leave good fund managers to do their own thing. Over 20-odd years it has generally worked. Sod’s Law is that when it doesn’t work it all stops working at the same time.

“But there’s no way that he would want people who have put faith in him to lose money and he will work hard to get things back on track.”

New Star is thought to have identified structural problems with the number of funds and managers it runs and has folded its UK Special Situations fund into New Star UK Alpha, a larger and more successful operation.

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