Somerset Capital is looking to sell the lucrative deal to business secretary Jacob Rees-Mogg, who co-founded the boutique fund manager.
The company, which manages about $5 billion, will be sold as CEO Dominic Johnson prepares to step down ahead of a possible political move, according to three people familiar with the situation. Negotiations are said to be taking place.
Johnson, a former Conservative vice chairman, co-founded Somerset with Reese Mogg 15 years ago, according to two people familiar with the matter.
Several options are being considered, including a management buyout and a merger with another asset manager, the people said.
Johnson told the Financial Times that Somerset hired advisor Spencer House earlier this year “to help manage its capital structure.”
He added: Our goal has always been to be an independent, employee-owned emerging market boutique, and Spencer House helps us in ways that continue to achieve this. ’” Spencer House declined to comment.
Following Johnson’s resignation, approximately half of the business’s stake will be held by retired partners not involved in day-to-day business operations, including Reese Mogg.
Transferring their ownership to an outside party or current management is a way to incentivize the next generation, according to people familiar with the matter.
One of the potential buyers is Emso Asset Management, which, like Somerset, specializes in emerging markets, according to one of the people involved. No terms of the deal have been finalized and negotiations may still fall apart.
With just under $6 billion under management, Emso has offices in the UK and US and was founded in 2000 by Mark Franklin, a former emerging markets banker at Salomon Brothers. Emso declined to comment.
Three years ago, when Somerset was seeking a partnership with Artemis Investment Management at a controversial valuation of between £70m and £100m, a deal was struck at a fraction of the price Somerset was valued at. Negotiations are under way, said a person familiar with the matter. Artemis is majority owned by the US-based Affiliated Managers Group.
Artemis declined to comment. AMG did not respond to a request for comment.
Somerset has since endured poor performance and declining profits amid a plunge in emerging markets, which has hurt the company and its peers, including Abdoun, AMG-owned Genesis Investment Management and Ashmore. gave Somerset’s assets under management have nearly halved from his $10 billion peak in 2018.
Somerset Capital Management LLP’s profit fell by more than 35% to £9.7m in the year to end March 2021, according to the latest results.
The deal marks the latest example of consolidation in the funds administration industry, where volatile markets exacerbate years of margin pressure and the group seeks to find ways to share costs and reduce overhead.
Somerset, which manages money for retail and institutional investors, expects earnings to fall further next year due to heightened investor caution from the coronavirus pandemic, as well as lower assets under management and fees. there is The benchmark, JP Morgan’s Emerging Markets Bond Index, has fallen more than 18% so far this year.
Rees-Mogg resigned in 2010 and became an advisor to the company when he became MP. He then resigned from his advisory role at Somerset in 2019 when he joined then-Prime Minister Boris Johnson’s cabinet. He was appointed business secretary earlier this month by Prime Minister Liz Truss.
Johnson owns about 15% of Somerset, while Reese Mogg’s stake is in his late to mid-teens, people familiar with the matter said.
Mr Johnson, who served as Conservative Vice-President from 2016 to 2019, will continue as an adviser to Somerset’s executive committee. He is also a Non-Executive Director of the International Trade Division.
Additional reporting by Jim Pickard and George Hammond
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