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In an interim management statement for the quarter ending 30 September, the asset management group revealed a £3.1bn loss in assets under management.

Assets under management at 30 September totalled £16.7bn, compared with £19.8bn at 30 June.

This has fallen further to £14.3bn at 13 November.

New Star said the fall in assets under management was mainly a result of the fall in asset prices (£1.8bn).

The group has also agreed with its bank syndicate that the covenants in respect of its debt should be amended with immediate effect to better accommodate the current trading environment.

As a result of the amendment the interest rate on New Star's debt has increased by 1.5 per cent, but the group has retained the option to pay the debt as a single payment in June 2013.

The statement said the proposed cost cutting would give the group a total annual savings of £20m compared with the expected level of costs for 2008.

Once surplus premises have been sub-let, New Star stated half of the annual savings would have been implemented already.

John Duffield, chairman of New Star, said: "The fall in markets since the summer and increased redemptions across the asset management sector have had a significant impact on our business.

"Our banks understand our position and are supportive. We are taking further action to cut our costs significantly.

"We were one of the first companies to warn investors about the impact of the credit crunch on our sector and we currently believe the exceptional risk aversion among investors may persist for some time, posing further challenges for fund management companies over the short term.

"The longer-term prospects for asset managers remain intact, however, as a result of the secular trends towards increased savings and investment flows in both the developed and the emerging markets.

"Such flows are likely to be redeployed in the financial markets, possibly after a time lag, in response to the coordinated interest rate cuts by the world's central banks and government moves to rebuild the solvency and liquidity of financial institutions."

Speculation has also been mounting over fund management group Henderson assessing a potential buyout of New Star.

Richard Acworth, head of corporate communications for Henderson, said: "We do not comment on speculation."

Adrian Kidd, IFA and PR relations officer of London-based Unleash Advice Partnership, said New Star's results had not come as a surprise in terms of what was happening in the markets.

He said: "However it is good they are looking to tackle these problems and have come out and said what the state of play is."