New Star announces intention to wind up Heart of Africa Fund

On 9 December 2008, New Star, with agreement from the fund's depositary, Royal Bank of Scotland, temporarily suspended dealing in the New Star Heart of Africa Fund due to weakening liquidity in the sub-Saharan markets.

As explained at the time, a period of increased redemptions had led to a growing concentration of increasingly illiquid stocks. This, coupled with difficulties in repatriating settlement proceeds from Nigeria, had meant the fund was unable to satisfy redemption requests.

While the issues with repatriating settlement proceeds have been resolved, the turnover of shares in the sub-Saharan African equity markets has remained low as the repercussions of the credit crunch have spread globally. As a frontier market region, with less mature financial systems, sub-Saharan Africa has not been immune to the turmoil affecting more developed markets. The underlying liquidity problems with certain markets and stocks in the sub-Saharan region have not improved and, in some cases, have deteriorated as investors have become more risk averse and trading volumes have fallen.

In the intervening weeks since suspension, it has become increasingly apparent that to reopen the fund to dealing would significantly disadvantage the remaining investors, who would be left with a residual portfolio of increasingly illiquid stocks. Illiquid markets and poor prospects for new inflows into the fund were it to reopen mean there is little likelihood of the situation improving in the short term. As a result, New Star and the fund's depositary believe that another avenue must be explored to provide liquidity to investors. After due consideration, and in consultation with the Financial Services Authority, it has been agreed that the most appropriate course of action is to seek a winding-up of the fund.

While there are several means of winding-up the fund, we recognise the need to maximise value for investors and to return proceeds as quickly as possible. We believe, therefore, that the most effective route to achieve this is to invite bids for the fund's entire portfolio. This method has the advantage of realising the fund's assets in one clean event as opposed to the current slow procedure of trying to effect individual disposals.

New Star has, therefore, agreed with the FSA an effective date of 31 March 2009, subject to formal approval, for the winding-up of the fund. Conditional on the successful disposal of assets, investors could expect to receive the proceeds shortly after this date. As part of the wind-up process, the fund will no longer publish an indicative price after the valuation point on Friday 6 February 2009.

Jamie Allsopp, manager of the New Star Heart of Africa Fund, says: "We regret having to take this action and realise that this is a disappointing outcome for investors. Having explored alternative routes, however, we believe the winding-up of the fund is the best means by which we can restore investors' access to their money."