The Old Star behind New Star

Fund manager John Duffield hasn't lost his Midas touch

When New Star Asset Management launched its first two retail funds last July, fund managers in the City, London's financial district, knew New Star would do well. After all, the founder and chairman of the startup was a legendary moneyman named John Duffield. But few predicted the cash would whoosh in as fast as it did. The funds, New Star UK Growth and New Star European Growth, attracted an astonishing $360 million from more than 25,000 investors in just three weeks, a record sum for a new open-end fund in Britain. "New Star is already one of our fiercest competitors," says the head of one rival money-management firm. "John's pulling in far more business than we expected."

Duffield owes the fast start to his sterling record as head of Jupiter Asset Management Ltd., one of the hottest money-management firms of the 1980s and 1990s. Set up by Duffield in 1985, Jupiter boasted assets under management of more than $22 billion at its peak and double-digit returns. In 1995, he sold a 75% stake to Germany's Commerzbank for $270 million and sold the remaining stake after a bitter wrangle with the bank two years ago. He then launched New Star, and it already has more than $3 billion under management. "And this is just the beginning," Duffield says. "I want New Star to become a big player like Jupiter was. I may fail, but I'm going to try."

Clearly, Duffield has not lost his Midas touch. New Star now runs 21 funds and most show returns in the top quartile of the rankings, with many in the top decile. There's one soft spot at the moment: The UK Growth fund is "doing diabolically," Duffield says, posting a decline of 10% since its launch. But that doesn't faze him. Currently, about half of New Star's assets come from institutions--mainly because one of his first moves was to buy WorldInvest, a London-based global investment manager that had $1.6 billion of institutional money on its books. But Duffield plans to repeat his strategy at Jupiter and focus on the retail side of the business, where fees are higher and customer loyalty stronger. That will involve both organic growth and acquisitions--he says. New Star can afford to spend up to $360 million on a purchase. "We've looked at every (firm) we know about that has come on to the market," he says.

Duffield, 62, no longer invests the money himself. "My job is to manage the managers," he says. And the secret to doing that is to "hire star fund managers and give them as much freedom as possible--subject to rigorous monitoring, control, and compliance--so they can focus on making money for clients." Last month, he poached Stephen Whittaker from Invesco Perpetual to turn around the UK Growth fund and Theodora Zemek from M&G International Management Ltd. to set up a new retail fixed-income team. But Duffield also likes to hire young trainees. He gives them each a million pounds or so of his own money to manage. "The ones who do well are given real funds to manage, and the ones who don't are given other jobs," says Duffield, who prides himself on never firing anyone.

Duffield's concern for his staff is part of a complicated personality. The money manager is famously outspoken, combative, and full of hubris. Friends say he also can be enormously affable and generous. Duffield, who enjoys a personal fortune of around $370 million and owns two farms in the English countryside, started his career at Joseph Sebag, a City brokerage firm that disappeared in the merger frenzy of the 1970s and 1980s. Duffield then spent 12 years in Switzerland, where he managed money on behalf of himself and his wife, Vivien Clore, who inherited part of a British department- and jewelry-store fortune.

Duffield's marriage ended in 1976--his wife was once quoted as saying he was "a lousy husband but an excellent money manager"--but his breakup with Commerzbank was far more dramatic. In early 2000, the Frankfurt bankers decided to take full control of Jupiter and buy out the 25% still owned by Duffield and his senior managers. A dispute over the value of their stake erupted--and culminated in Duffield calling three senior Commerz executives "bloody Nazis" to their faces. In May, 2000, Commerz paid the $725 million that Duffield demanded, but then fired him on the spot. Duffield then sued the bank for unfair dismissal and won $7.25 million; he gave half to charity. Duffield has since gleefully watched Jupiter stumble; it barely broke even last year. Commerz has now put it on the block, but Duffield says he is not interested in buying it back.

Starting his second firm from scratch hasn't been all smooth sailing. Duffield has been frustrated in his quest to buy another retail money manager; one that recently slipped through his hands was the asset-management operation of Royal & Sun Alliance Group, which went to Friends Ivory & Sime for $350 million. Duffield was prepared to offer only $300 million. But as new money continues to pour into his funds, investors clearly believe that Duffield still has the golden touch.

By David Fairlamb with Stanley Reed in London

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