Duffield in cut-price splits buy

DISTRESSED Exeter Investment Group has been forced to sell its unit trust business at a knock down price to City maverick John Duffield's New Star Asset Management.

Exeter is expected to set aside the £9m sale proceeds to meet litigation costs as the troubled investment firm faces misselling claims related to split-capital investment trusts. Experts estimate Exeter's final compensation bill at £17m.

Exeter is one of the firms at the centre of the split-capital investment trust scandal. It is believed that Exeter has been forced into the sale because of serious trading problems and concerns over the potential bill for mis-selling claims.

Meanwhile, the Independent on Sunday reported that New Star is quietly putting into liquidation its Enhanced Income Trust, a splits fund that has lost around £55m in two years.

More than 50,000 small savers lost hundreds of millions of pounds on split-trusts which were sold as low risk investments but in fact borrowed heavily and took out cross shareholdings in each other's funds. Last week the Financial Services Authority, the City watchdog, said its investigation into the scandal would involve 60 staff and be its biggest to date.

Sources close to Exeter have confirmed that Duffield has agreed to pay close to £9m for the group's dozen unit trusts, which have combined assets of just under £300m. The purchase, thrashed out by Duffield and Exeter's chief executive Mark Kemp-Gee, will take New Star's funds under management to more than £4bn, from a standing start two years ago.

New Star paid £92.5m this year for £1.7bn of unit trust assets from Aberdeen Asset Management, also embroiled in the split capital trust scandal. The price, equivalent to 5% of funds under management, compares with the 3% which Duffield is paying for Exeter.

Exeter racked up pre-tax losses of £1.1m in the six months to March and chairman Jeremy Pope conceded that margins were under pressure. There was no provision in the accounts for compensation arising from the split capital trust mis-selling claims.

New Star's Enhanced Income Trust, launched in May 2001, invested in 19 split-capital trusts, 11 of which have had their shares suspended, or face restructuring or liquidation, the Independent on Sunday said. KPMG are expected to be appointed liquidators on 29 July.

New Star would not comment.