Nov. 14 (Bloomberg) -- New Star Asset Management Group Ltd., the fund company set up by John Duffield, agreed to pay a higher rate on its debt and said it will cut 20 million pounds ($30 million) of costs after assets under management fell 28 percent.

The interest rate on New Star's debt rose 1.5 percent after it amended its line of credit with banks to ``to better accommodate the current unsettled trading environment,'' the company said in a statement today. About half of New Star's cost cuts will come from subletting ``surplus premises,'' it said.

Assets under management fell to 14.3 billion pounds, down from 16.7 billion pounds at the end of September and 19.8 billion on June 30, as markets tumbled and client redemptions rose. Asset prices fell by 1.8 billion pounds, and net outflows since Sept 30 were about 523 million pounds. That includes net outflows of about 316 million pounds from mutual funds, 155 million pounds from external hedge fund investors, and 89 million pounds from institutional funds.

``The rate of redemptions from U.K. mutual funds has increased in recent weeks,'' New Star said in the statement. ``Retail investors have reduced risk in reaction to the high volatility of the capital markets.''

New Star rose 12.5 percent to 31.5 pence at 8:21 a.m. in London, valuing the firm at 85 million pounds. Today's gain trimmed the share decline this year to 82 percent.

New Star said its debt will be repaid in a single payment in June 2013 and it never breached its financial covenants.

``The fall in markets since the summer and increased redemptions across the asset management sector have had a significant impact on our business,'' Duffield said. ``The exceptional risk aversion among investors may persist for some time, posing further challenges for fund management companies over the short term.''

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

Last Updated: November 14, 2008 03:36 EST