US Edition The investment house last week put in a bid for its rival, thought to be worth in excess of £100m, as part of a process that could see the business snapped up within weeks.
Other rivals – Neptune Investment Management, Henderson and at least one private equity player – are thought to have made indicative proposals, along with Schroders, prior to last week's deadline.
Aberdeen, the investment house that became Britain's biggest fund manager when it bought Credit Suisse's asset management division two weeks ago, is also interested in the sale process, which is being handled by bankers at UBS. Hellman & Friedman, the private equity group that owns Gartmore, is another potential bidder.
Schroders is considered a front-runner in the contest since it has a cash surplus of about £700m, which puts the group in far stronger financial position than most fund managers at the moment.
New Star is being sold on behalf of its new controlling shareholders, a group of banks – HBOS, Lloyds TSB, HSBC, Royal Bank of Scotland and National Australia Bank.
The group took control of New Star at the beginning of December to prevent the investment group collapsing under the weight of £240m of debts.
A debt-for-equity swap and a delisting of New Star's shares was agreed in a deal that would give the banks nearly 95pc of the company's equity in return for forgiving the debt pile.
The plans, which are still being worked on, are slated for completion at the end of January.
Insiders said the banks would prefer a sale if one can be agreed quickly.
A speedy move would end uncertainty among clients about the future of the management group and stop more redemptions from New Star funds.
The group, which managed more than £20bn six months ago, said before Christmas that is has just £12bn under management. Its share price plummeted by 98pc last year.
On Friday, New Star's shares closed at 2.93p, giving it a stock market value of just £7.9m.
The City has been shocked by the collapse of New Star, one of Britain's best-known fund managers.
From a standing start in mid-2001, New Star sold financial products to one-in-10 retail customers. Much of New Star's success was credited to its flamboyant founder. Mr Duffield, now 68, shot to fame when he founded Jupiter Asset Management in 1985 and built it into one of Britain's best-known investment brands.
He made about £175m when Commerzbank, the German bank, bought Jupiter in 2000 in a deal that famously turned his then secretary and other employees into millionaires too.
But his uneasy relationship with the new German owners led to an acrimonious and high-profile legal battle.
Mr Duffield won a £5m out-of-court settlement and went on to found New Star. He gained a reputation for hand-picking managers at New Star and having zero tolerance for those who failed to deliver.
Mr Duffield, who has lost an estimated £950,000 on his 7pc stake in the company, is expected to leave New Star as soon as the sale process is concluded.
Schroders, one of the oldest blue-blood names in fund management, is 47pc owned by the Schroders, the German banking family.
Michael Dobson, who has been chief executive for seven years, was criticised during the boom years for holding cash and declining to take debt onto Schroders' balance sheet.
Now, as asset management groups around the world have slumped in the economic downturn, Schroders' financial strength has meant its shares have been less hard hit than those of its rivals.