Jacob Rees-Mogg’s Somerset Capital didn’t fail because of his politics
The demise of Somerset Capital, the London-based emerging markets boutique co-founded by ex-Brexit minister Jacob Rees-Mogg, has sparked concerns about how his divisive brand of politics might have played in its downfall. Back in 2018, Rees-Mogg faced probing questions when it emerged that Somerset Capital had launched a new fund in Dublin amid concerns about being cut off from European investors.
For most asset managers, launching funds in countries governed by EU was part of a pragmatic contingency plan to mitigate against Brexit risk. Establishing a fund in Ireland is strategic move to attract and retain EU-based investors, allowing asset managers to maintain access to key markets without facing barriers. No doubt numerous Somerset Capital investors preferred to have funds domiciled or managed within the EU due to regulatory familiarity and stability.
The issue is, Somerset Capital was inextricably linked with a staunch advocate for leaving a market which allowed funds to be marketed freely across the continent. However, hypocritical political aesthetics aside, assessing the impact of Rees-Mogg’s persona on Somerset Capital’s most recent misfortunes requires a much more nuanced non-political perspective.
Somerset’s attempt to weather financial challenges involved implementing changes to become a (get ready for some horrid corporate jargon) “more nimble, viable organisation.” This included slashing headcount and outsourcing certain functions. The departure of key personnel, such as the head of UK distribution and portfolio managers, suggests a major internal restructuring aimed at adapting to the evolving investment landscape.
The firm’s financial performance paints a picture of declining assets under management (AUM), shrinking from a peak of over $10bn in 2018 to around $3.5bn by October 2022. Revenue dropped 15 per cent to £23.5m in the year ending March 2022, accompanied by a 32 per cent fall in profit to £9.1m.
While Rees-Mogg’s hardline constitutional views may be divisive from a reputation management perspective, it’s crucial to differentiate between political perception and financial acumen. Somerset Capital’s challenges seem rooted in industry dynamics, financial performance, and strategic decisions rather than Rees-Mogg’s ideology. The rejection of a £90m bid from Artemis in 2019 and the reported interest from Emso Asset Management in 2022 indicate that potential suitors were considering the firm irrespective of its political ties.
Investors prioritise returns, risk management, and the competence of fund managers over their political affiliations. Somerset Capital’s decline in assets under management (AUM) and financial performance should be attributed to broader market conditions, changing investor preferences, and internal dynamics rather than political considerations. It is also worth noting that Rees-Mogg stepped back from the day-to-day operations of Somerset Capital in 2019 and became a minority shareholder. The departure of co-founder Lord Dominic Johnson as CEO in 2022 further underscores the evolving leadership dynamics within the firm.
Specific factors influencing the decisions of UK asset managers may vary based on individual circumstances, business strategies, and regulatory developments. Somerset Capital, perhaps more so than most UK asset managers, have had to wrestle with a post-Brexit political contradiction issue by being connected to Mogg. But ultimately, while political views can undoubtedly influence public perception, this is different from influencing institutional investor decision making. Somerset Capital’s struggles are unquestionably tied to specific financial challenges and mismanagement. Investors base their decisions on the firm’s ability to generate returns and manage risks rather than the political affiliations of its co-founder.
The narrative of Somerset Capital serves as a reminder that in the complex world of finance, success hinges on adaptability, financial prudence, and strategic foresight rather than anything to do with political links.