Dominic Johnson, founding partner and chief executive of Somerset Capital Management, has decided to introduce dilution levies across its fund range.
From 23 June 2014, a dilution levy of 30 basis points will be applied to Somerset’s Global Emerging Markets fund, 40 basis points to Emerging Markets Dividend Growth, and of 50 basis points to Emerging Markets Small Cap.
Each highly performing fund is run by a star Citywire AA-rated manager: respectively, Edward Robertson, Edward Lam and Mark Asquith. The size of the dilution levy reflects the liquidity of each portfolio, and it is paid into the fund – not to Somerset.
Other mechanisms, such as bid/offer pricing, can have the same effect of protecting unitholders from the costs of other investors trading in and out of the fund, so Johnson shares Somerset’s rationale for taking this path.
Johnson also reveals why Somerset opted for this approach to managing flows rather than launching investment trusts with fixed asset pools – despite his belief that ‘all fund managers would love to have a closed-ended fund’.