Old Mutual, the insurer, admitted today that it was unlikely to hit its target of taking funds under management to £300 billion as it emerged that one of its American subsidiaries took a bath on an investment in Bear Stearns, the rescued Wall Street bank.

Jonathan Nicholls, Old Mutual's finance director, blamed torrid market conditions during the start of the year for a 6.5 per cent slide in funds under management as at the end of March of £260.8 billion.

Old Mutual had originally hoped to pass the psychologically important funds barrier by the end of the year.

But as the group posted a disappointing set of first quarter sales, battered by nervous investors in the UK, Mr Nicholls acknowledged that this was all but impossible.

"It's been a very volatile quarter. Investor confidence, clearly in the retail sector, has been hit," Mr Nicholls said. "We are going to be in the high £280 billions, the £290s," he said.

"Our performance stands well against our peers. For us it is a medium term target."

He was speaking as strong sales in the US and a better than expected performance in South Africa failed to offset an 18 per cent drop in life sales in the UK.

It meant that Old Mutual, listed in London and Johannesburg, grew first quarter life sales on an annual premium basis by just 2 per cent to £426 million and missed consensus forecasts.

New business in the UK was hit by slower sales of offshore life investment bonds, made less attractive by changes to capital gains tax introduced by Alistair Darling, the Chancellor.

Old Mutual was forced further on to the back foot after it emerged that Barrow, Hanley, Mewhinney & Strauss, one of its American boutique subsidiaries, was sitting on a 9.7 per cent stake in Bear Stearns, the troubled US securities firm now owned by JP Morgan.

Barrow Hanley's Bear holding was worth about $1 billion as at the end of last year. It is thought the firm bought at about $30 a share.

The bank's share price collapsed in March after its funding sources ran dry and it was forced to seek an emergency bailout from JP Morgan, co-ordinated by the Federal Reserve.

Bear shares were valued at $10 for the purposes of the takeover, leaving Barrow, Hanley's holding worth $100 million.

Mr Nicholls said that the impact of the stakeholding would be minimal. He said that it was held as part of a 40-fund portfolio and the maximum hit to the fund would be 2.5 per cent, even if the Bear stake was written down to zero.

He also said that while Barrow, Hanley had a long position in Bear, some of its other 19 investment boutiques had short positions. He declined to provide detail on potential losses, but dismissed the effect as tiny.

The Shares fell 3.5p to 122.7p.

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