Bear Stearns Asset Management is set to lose 18 per cent of its $44 billion in assets under management when a senior executive leaves to set up his own firm.

Jeff Lane, the bank’s new head of asset management, said that James O’Shaughnessy will take a portfolio valued at $8 billion with him when he departs to set up his own asset management firm. Mr O’Shaughnessy, who is head of Bear Stearns’ systematic equity team, announced he would leave the firm to open his own investing business, O'Shaughnessy Asset Management, in July.

Mr O'Shaughnessy will continue to serve as a sub-advisor for several of Bear Stearns Asset Management clients and is also taking some other members of his money-management team along to his new firm.

As of 31 May, Mr O'Shaughnessy's team had about $12.7 billion in assets under management, most of which will continue to be managed at the newly formed firm.

But the impact on financial performance would be less severe because Bear will have a minority stake in and a revenue-sharing arrangement with Mr O'Shaughnessy's new firm.

Bear Stearns suffered a major embarrassment early in the summer when two over-leveraged hedge funds imploded. Mr Lane was brought in from Lehman Brothers to take over for Rich Marin as head of asset management.

Despite the recent troubles, the firm continues to see positive fund flows, Mr Lane told analysts at the firm's investor day. He said that the asset management division plans to build out its wealth management business for high net worth investors and was also considering acquisitions of long-only, hedge fund and private equity managers to jump-start expansion of its money-management business.