New Star's funds have their bad years like the rest of the industry, but the perception is different and that has given the firm a considerable strategic advantage. In its short life it has grown its funds under management rapidly and much of that growth has come from buying less successful fund management groups or clutches of their funds.
The problem with buying funds in this way is that a number of clients will not like the switch of owner and will withdraw their money.
Because there is no way of knowing in advance how much the purchaser will be left with, potential buyers tend to pitch their bids low to compensate for anticipated outflow.
New Star's advantage is that its reputation for performance means customers are happy to stay with it. It suffers lower levels of outflow and, anticipating this, it can afford to pay more for its acquisitions than its less-hyped competitors.
Duffield is a smart man and he works at his PR. There is a not much that can be said about mutual fund groups, but he has countered this by projecting his star fund managers and being on hand to deliver his own robust views.
As a strategy it is soon to pay off again. New Star is heading for a stock market quotation, making potential millionaires even of the secretaries who were with Duffield in the early days – another PR coup in the making. Hats off to a maestro who knows how to make the press work for him.