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The fund house is in the midst of a business restructure which will see it cut costs of up to £20m annually, in the hope it can better position itself against the downturn in capital markets.

It is also said to be in talks with bankers to renegotiate its levels of debt.

Meanwhile, BestInvest a London based financial advisory firm has suspended its ratings on all New Star funds pending greater certainty regarding the future of the company.

The affected funds are Sterling Bond, High Yield Bond and UK Property.

Hargreaves Lansdown also stopped recommending five of New Star’s funds on Monday 1 December.

The funds include: European Growth, Heart of Africa, UK Alpha fund, Global Financials and Indian equity.

Commenting on its decision to remove the funds from its buy list, analyst at the firm, Ben Yearsley, said: "It’s just sensible to say that if you’re considering investing at the moment its better to hold off to see what happens.

"A number of rivals are also said to be interested in acquiring New Star however a debt for equity swap with the banks is also thought to be in the pipeline.

"Assuming banks will do a debt for equity swap then they’ll end up owning most of the firm at a cheap price."

Yearsley also says the banks could effectively buy New Star for £240m gaining £13bn of assets under management in return.

However he warned: "The key is to tie in the fund managers going forward."