Somerset Capital Management
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Investment Approach

An Introduction to Sustainability Risk in Emerging Markets

An Introduction to Sustainability & Stewardship in Emerging Markets

 

We set up Somerset Capital Management in 2007 with one goal: to create an Emerging Markets investment management firm with the right culture and organisational design to fulfil our purpose of delivering superior long-run investment returns for our clients.

Key to that purpose of investing successfully in Emerging Markets is our culture of long-term, independently minded partnership.  Our culture supports our stewardship of the capital entrusted to us by clients, the advice we give our companies on the risks and opportunities facing them, and the way we work internally with one another.

 

The values of our Partnership

Specialisation: we are an Emerging Markets and Asia specialist. Unlike many of our competitors, this is all we do as a firm.

Our diverse team of experienced investors based in London, Singapore and Shanghai have one of the longest track records of managing money in Emerging Markets and Asia, supported by a trading and operations team who are experts in addressing the idiosyncrasies of operating in our markets.

Alignment with clients: we are a privately owned business structured as a partnership and do not have to justify short term financial performance to the stock market. We invest alongside our clients and cap our fund-sizes. We focus on fund performance, not fund distribution.

Transparency: we publish our holdings, our record of engagement and voting, our individual partnership interests, and invite clients to join our Advisory Board to help steer and reinforce our partnership.

 

Our experience of investing in Emerging Markets

Investing in Emerging Markets requires a different approach to Developed Markets. Informational inefficiencies abound, country specific power structures have to be deciphered, and political noise often amplifies the effects of short-term capital flows. The very nature of Emerging Markets means the companies in which we invest are not the finished article; this applies to the evolving demand, regulatory landscape, competitive environment they face, the level of management and board quality, as well as the way they consider the views of external stakeholders.

The financial returns on offer for long-term investors of capital in Emerging Markets can be substantial, but identifying those companies which are able to grow profitably over the course of a market cycle requires patience and the disciplined application of an investment process designed specifically for Emerging Markets. Our firm is designed to give us the best chance of doing that for our clients.

Our investment team follows an investment process developed over three decades of investing in Emerging Markets.

 

Our investment beliefs

We believe that long-term active management is the best way to reduce the risk of capital loss rather than simply following an index. Real risks in Emerging Markets are absolute rather than relative. We have developed an independent approach to assessing risks in our companies and our portfolios. These we refer to as our four key risks: Business, Financial, Governance, and Valuation.

We believe that constructing concentrated portfolios of great businesses that we know really well and plan to hold for the long-term is the best way to perform for our clients.

In the midst of an ever-changing investment landscape across Emerging Markets, the aim of our research has remained the same: to identify factors that are likely to have a material impact on investments made on behalf our clients. This requires diligent in-depth research that looks beyond traditional categories of financial analysis, including many now labelled as ESG factors.

We prefer to use our own thinking and methodology but we will use third party inputs if they help us understand our companies better. We continuously look for ways of improving our understanding of all factors of analysis.

We hold a privileged position in capital markets of being able to interact and engage with senior management teams on improving company performance. There is no such thing as a perfect company but we believe that by encouraging management teams to take good capital allocation decisions and to treat shareholders and other stakeholders fairly, we can achieve long-term capital growth for our clients and encourage companies to have a positive impact in their respective jurisdictions.

Where we have expertise we will offer advice and share examples of our prior experience with other companies in Emerging Markets, and we view these engagements as a core part of allocating capital.  We exercise our votes on all our holdings but find in Emerging Markets our voice is often better heard before formal votes.

We don’t invest with a specific moral agenda but we do want to ensure we play our role in maintaining healthy and functioning capital markets. We want to allocate long-term capital to companies that create prosperity for stakeholders, and do so without creating significant negative externalities that undermine those benefits. To that end we will not invest in companies where our analysis uncovers the company profiting from human rights or environmental abuses; such practices are neither sustainable nor acceptable to us.

Should we become aware of any such potential issues after our initial investment we will investigate and potentially engage with the company involved, in an attempt to understand and influence their approach. If we are not convinced that management are willing to satisfactorily address any material issues then we will ultimately end our investment.

For more information on our Sustainability Investment Policy, which sets out our compliance with the Sustainable Finance Disclosure Regulation, please get in touch.

UK Stewardship Code Signatory

Somerset became a signatory of the 2020 UK Stewardship Code on 7th September 2022.

Proxy Voting

To view our voting policy and firm voting record, please use the links below:

Firm Voting Record – 2021

Proxy Voting Policy

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This image is courtesy of Pullman Editions

An Introduction to Sustainability & Stewardship in Emerging Markets

 

We set up Somerset Capital Management in 2007 with one goal: to create an Emerging Markets investment management firm with the right culture and organisational design to fulfil our purpose of delivering superior long-run investment returns for our clients.   

Key to that purpose of investing successfully in Emerging Markets is our culture of long-term, independently minded partnership.  Our culture supports our stewardship of the capital entrusted to us by clients, the advice we give our companies on the risks and opportunities facing them, and the way we work internally with one another.

 

The values of our Partnership

Specialisation: we are an Emerging Markets and Asia specialist. Unlike many of our competitors, this is all we do as a firm.    

Our diverse team of experienced investors based in London, Singapore and Shanghai have one of the longest track records of managing money in Emerging Markets and Asia, supported by a trading and operations team who are experts in addressing the idiosyncrasies of operating in our markets.

Alignment with clients: we are a privately owned business structured as a partnership and do not have to justify short term financial performance to the stock market. We invest alongside our clients and cap our fund-sizes. We focus on fund performance, not fund distribution.    

Transparency: we publish our holdings, our record of engagement and voting, our individual partnership interests, and invite clients to join our Advisory Board to help steer and reinforce our partnership.

 

Our experience of investing in Emerging Markets

Investing in Emerging Markets requires a different approach to Developed Markets. Informational inefficiencies abound, country specific power structures have to be deciphered, and political noise often amplifies the effects of short-term capital flows. The very nature of Emerging Markets means the companies in which we invest are not the finished article; this applies to the evolving demand, regulatory landscape, competitive environment they face, the level of management and board quality, as well as the way they consider the views of external stakeholders.

The financial returns on offer for long-term investors of capital in Emerging Markets can be substantial, but identifying those companies which are able to grow profitably over the course of a market cycle requires patience and the disciplined application of an investment process designed specifically for Emerging Markets. Our firm is designed to give us the best chance of doing that for our clients.

Our investment team follows an investment process developed over three decades of investing in Emerging Markets.  

 

Our investment beliefs

We believe that long-term active management is the best way to reduce the risk of capital loss rather than simply following an index. Real risks in Emerging Markets are absolute rather than relative. We have developed an independent approach to assessing risks in our companies and our portfolios. These we refer to as our four key risks: Business, Financial, Governance, and Valuation.

We believe that constructing concentrated portfolios of great businesses that we know really well and plan to hold for the long-term is the best way to perform for our clients.   

In the midst of an ever-changing investment landscape across Emerging Markets, the aim of our research has remained the same: to identify factors that are likely to have a material impact on investments made on behalf our clients. This requires diligent in-depth research that looks beyond traditional categories of financial analysis, including many now labelled as ESG factors.  

We prefer to use our own thinking and methodology but we will use third party inputs if they help us understand our companies better. We continuously look for ways of improving our understanding of all factors of analysis.

We hold a privileged position in capital markets of being able to interact and engage with senior management teams on improving company performance. There is no such thing as a perfect company but we believe that by encouraging management teams to take good capital allocation decisions and to treat shareholders and other stakeholders fairly, we can achieve long-term capital growth for our clients and encourage companies to have a positive impact in their respective jurisdictions.

Where we have expertise we will offer advice and share examples of our prior experience with other companies in Emerging Markets, and we view these engagements as a core part of allocating capital.  We exercise our votes on all our holdings but find in Emerging Markets our voice is often better heard before formal votes.   

We don’t invest with a specific moral agenda but we do want to ensure we play our role in maintaining healthy and functioning capital markets. We want to allocate long-term capital to companies that create prosperity for stakeholders, and do so without creating significant negative externalities that undermine those benefits. To that end we will not invest in companies where our analysis uncovers the company profiting from human rights or environmental abuses; such practices are neither sustainable nor acceptable to us.

Should we become aware of any such potential issues after our initial investment we will investigate and potentially engage with the company involved, in an attempt to understand and influence their approach. If we are not convinced that management are willing to satisfactorily address any material issues then we will ultimately end our investment.

For more information on our Sustainability Investment Policy, which sets out our compliance with the Sustainable Finance Disclosure Regulation, please get in touch.

 

UK Stewardship Code Signatory

Somerset became a signatory of the 2020 UK Stewardship Code on 7th September 2022.

 

Proxy Voting

To view our voting policy and firm voting record, please use the links below:

Firm Voting Record – 2021

Proxy Voting Policy

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