Somerset Capital Management is closing after large redemptions from clients made it unsustainable.
This move represents a dramatic turnaround in fortunes for Somerset. A specialist in investing in emerging markets at its height in 2018, it had $10bn of assets under management. It rejected an offer of up to £90mn four years ago from its London-based competitor Artemis Investment Management.
On Saturday , it was reported that Somerset lost over two-thirds its assets when its biggest client, St James’s Place severed its ties.
Two sources familiar with the situation say that Somerset’s executive board decided to start winding down the partnership. They believe this is the best course of action due to the financial impact of redemptions on the partnership and its members.
They said that the partnership will terminate its investment management relationships with each fund and either return money to clients, or find another fund manager to manage the investments.
Somerset has declined to comment.
SJP ended its relationship with Somerset last month and transferred approximately $2.5bn of assets. This was due to poor performance, and the UK wealth manager’s need to revamp its fee structure in order to comply with regulatory requirements.
Somerset’s assets dropped from $3.5bn to $1bn by the end of the month, showing the risk associated with having so much money in one client’s hands.
The exit of SJP has upset the remaining clients. These include the State Board of Administration of Florida, and the Civil Service Superannuation Board of Manitoba (Canada).
Rees-Mogg Edward Robertson Dominic Johnson founded Somerset in 2007. They had previously worked at Lloyd George Management as emerging markets fund managers.
Only Robertson, one of the three founders, remains with the company. Rees Mogg, who served as a minister under the governments of Boris Johnson, Liz Truss and David Cameron, left Somerset and is now a passive shareholder.
Dominic Johnson, former chief executive of Somerset, is now minister for Investment in Rishi Sunak’s government.
According to Trustnet, the MI Somerset Global Emerging Markets Fund, managed by cofounder Robertson has lost 5.8 percent in the twelve months ending December 6. The fund has lost 26 percent over the past three years, and 5.8 percent over the last five years.
For all three periods, the fund’s performance has placed it in fourth place among its peers. The fund was overweight China which hurt its performance when markets turned against it.
In addition to the pressure on performance, the firm had the additional challenge of motivating the next generation. About half of the equity was held by retired partners who were not involved in the day-to-day operations of the company. It also had to deal with rising business costs and investors’ disinterest in emerging markets.
Somerset has had discussions with boutique firms Emso Asset Management, and Artemis. Around a year back, when the assets of Somerset were around $5bn, it was exploring various strategic options. These included a merger, sale or management buyout. None of these, however, came to fruition.