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Home > Investments > Emerging Markets

By Nyree Stewart | Published Sep 17, 2012

Focusing on liquidity while seeking value added stocks

Unlike some of its peers, Somerset Capital Management is a company that buys into the notion that, when it comes to assets under management, size matters.

This is why the Somerset Capital Small Cap fund was closed to new investment when it reached $400m (£250.13m) and also why Dominic Johnson, chief executive of Somerset Capital, aims to do the same with the Dividend Growth fund.

He says: “In the Dividend Growth fund, I wouldn’t like to manage more than a couple of billion dollars, $2-2.5bn. Our peers are running large-cap strategies at $40-50bn so it’s a completely different approach. We want to keep a balance between liquidity and finding interesting small and mid-cap companies. We focus on liquidity but look for value added companies.”

The company, which celebrates its five-year anniversary in 2012, is a small provider with just four global emerging market equity funds, one of which – the small-cap product mentioned above – is currently closed to investors.

Mr Johnson adds: “In our experience, fund management firms went wrong, problems arose, because they gather assets and proliferate products rather than focus on what they’re good at. The only way you can have a structure that’s designed for strong performance is to have a business that focuses on a smaller amount of money and being very, very specialist. And a partnership structure allows you to do that because you don’t have external shareholders pushing you to do things.”

Somerset Capital is an employee-owned partnership, with employees working at the company for three years being offered a partnership, which Mr Johnson says keeps staff turnover low and creates a collegiate atmosphere in the company.

He says: “We encourage co-investing, which is crucial. We insist on it – basically, your money should be in your fund. All my money and savings are in Somerset Capital funds, most in the Dividend Growth fund. I wouldn’t dream of having my money anywhere else apart from specialist cases. It is really important psychologically.”

The company also has clear views on transparency, as Mr Johnson explains the need for a shareholder partnership that is evolutionary, alongside very focused products and the only way to police that is through a process that encourages transparency. All the company’s clients are invited to an annual board in which they can voice their views on whether or not Somerset has evolved the shareholding process.

Mr Johnson also highlights the need for a firm to offer good value, with Somerset Capital capping the fees on its large-cap funds and carrying no performance fees on its Dividend Growth offering.

“It’s a virtue to be good value. Other firms think they should charge as much as they can but I think the other way round. I think you have great stability through doing well and being reasonable with your fees. And as an owner, and we’re a young boutique, stability and reputation are more important than short-term squeezing. We’re not trying to be moral, but we see our structure as being much better for what we’re doing.”

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