New Star Asset Management's woes escalated yesterday as the embattled fund manager was forced to suspend redemptions on its £470 million International Property fund in order to head off a fire sale of assets.

New Star's shares slumped by a third, down 8p to 16p, as John Duffield's struggling group admitted that a rush for the exit by institutional investors had led it to suspend dealing in the fund until further notice.

Stuart Webster, New Star's head of global property, said that investors had pulled £75 million of assets from the fund in recent weeks, draining it of cash. It owns commercial property in Tokyo, Japan, Singapore and Australia, among other places. Mr Webster insisted he would not be forced into unwanted property sales.

It is likely that the fund will remain shut for at least a couple of months to give New Star time to release capital and in the hope that the property market returns to health.

Mr Webster maintained that the fund was the best-performing in its class. He acknowledged that its property assets had fallen in value by 6.5 per cent since the launch in June last year. “I will get this fund back open as soon as humanly possible. This is not a good feeling, this is a good fund,” he said.

The International Property fund is one of two flagship New Star commercial property funds. New Star has been battling to keep its UK fund open to investors, having already been forced to mark down the value of assets.

The company is trying to save £20 million in costs as it combats sliding investment markets and a steep drop in its own share price.

Schroders, a rival asset manager, has told investors in its open-ended property fund that redemptions will be subject to a heavy discount.

William Hill, head of property at the company, said: “We have to do this to protect other investors in the fund.”

Schroders had £130 million of redemptions in September of last year, which it was able to pay out on in December and March. Since then, there has been an outflow of funds of only £2 million.

“Our clients are taking a long-term view,” Schroders said. The next window for redemptions from the fund is December. Schroders said that there had been “very few” requests.

Mr Hill said that the commercial market was dealing in “virtual reality” valuations, since the main indices for commercial property had fallen by only 27.5 per cent since July 2007.

Times Recommends

• Gazprom brands Ukraine 'a barbarian' in gas row
• Services sector raises fears over UK jobless
• Retailers surge as profits survive sales plunge