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Somerset Capital Management, the boutique fund manager co-founded by Tory MP Sir Jacob Rees-Mogg, is to wind down after large client redemptions made the business unsustainable.
The proceed marks a dramatic reversal in fortunes for Somerset, a specialist in emerging markets investing, which at its peak in 2018 had $10bn in assets under management. As recently as four years ago it rejected a bid of up to £90mn from London-based rival Artemis Investment Management.
The Financial Times reported on Saturday that Somerset had lost more than two-thirds of its assets after its largest client, St James’s Place, severed ties.
Somerset’s executive committee concluded that in light of the redemptions and their detrimental effect on the partnership’s financial position, it is in the interests of the partnership and its members to begin a wind-down process, according to two people familiar with the situation.
The partnership is terminating its investment management relationship with each of the funds and either returning money to clients or finding another fund manager to take over the investment management, they said.
Somerset declined to comment.
SJP terminated its relationship with Somerset and last month transferred about $2.5bn in assets, amid poor performance and a need by the UK wealth manager to overhaul its fee structure as it faces regulatory pressure to comply with consumer duty rules.
The proceed brought Somerset’s assets down from $3.5bn at the end of October to about $1bn, illustrating the business risk of having such a large amount of money concentrated in the hands of one client.
SJP’s exit unsettled remaining clients, which include the State Board of Administration of Florida and the Civil Service Superannuation Board of Manitoba in Canada.
Somerset was founded in 2007 by Rees-Mogg, Edward Robertson and Dominic Johnson. The three had previously worked together at Lloyd George Management, an emerging markets fund manager.
Of the three co-founders, only Robertson remains at the firm. Rees-Mogg, who was a minister in the governments of Boris Johnson and Liz Truss, left Somerset in 2019 and is a passive minority shareholder in the firm. Johnson stepped down as Somerset chief executive last year and is currently minister for investment in Rishi Sunak’s government.
The MI Somerset Global Emerging Markets fund, which is managed by co-founder Robertson, has lost 5.8 per cent in the 12 months to December 6, according to Trustnet. It is down 26 per cent over three years and down 5.8 per cent over five years.
The fund’s performance places it in the fourth quartile among peers for all three periods. It had been overweight China, which hurt performance as markets moved against it.
Compounding the performance pressure, the firm faced the challenge of incentivising the next generation, as about half of the equity in the business was held by retired partners not involved in its day-to-day running. At the same time, it grappled with the rising costs of doing business and emerging markets falling out of favour with investors.
Somerset has held discussions before with potential buyers including boutique firms Emso Asset Management and Artemis. About a year ago, when assets were at about $5bn, the firm was exploring strategic options, including a sale, merger or management buyout, but none of these came to fruition.
