Somerset Capital Management has launched a global emerging markets fund with seed capital of $350m, targeting medium-sized businesses.
The Somerset Emerging Markets Future Leaders UCITS fund will invest in businesses which derive a majority of earnings from emerging markets, with a market cap range of $750m to $13bn.
Managed by Edward Robertson and Anthony Linehan, the fund will target "companies which can grow earnings, book value and cash flow per share sustainably over a market cycle and which they believe have the potential to grow into industry-leading businesses".
All investable companies will be assessed according to Somerset's ESG criteria and will engage with its holdings on "material issues where it believes it can influence positive change".
The fund carries an exclusionary policy to "accommodate the evolving preferences of pension funds and other long-term institutional investors around the world" and will not invest in tobacco or fossil fuels.
It will invest in a portfolio of 40 to 50 companies with a typical holding period of three to five years, and will be available to investors in GBP, USD and other currencies on request.
Seed capital of around $350m for the fund has been provided by Swedish national pension fund Första AP-fonden (AP1), which also provided a seed investment for the firm's Somerset Frontier Markets fund in 2018.
Linehan said: "Emerging markets have been heavily out of favour for some time but we believe the recent volatility has given investors an opportune moment to buy into high quality smaller and medium-sized companies at very attractive valuations.
"The companies we invest in do not typically feature in the list of usual suspects you find in funds elsewhere nor in the passive vehicles.
"Our long experience of investing in these markets has allowed us to develop a framework for identifying the characteristics that we believe are critical for any company wishing to be a future industry leader.
"These include evidence of a strong competitive position, the financial muscle to get through the next down cycle and the ability to navigate regulatory and consumer preference changes relating to ESG.
"The era of badly run, corrupt companies making big profits is coming to an end. Being able to distinguish between those that take corporate governance and sustainability issues seriously and those that don't will be absolutely crucial in identifying future winners and losers."
Sebastian Stewart, partner and head of client services, added: "We have been managing the Somerset Emerging Markets Mid Cap Strategy successfully since 2012 for numerous global institutional investors.
"AP1 have been investors in this strategy since 2013 and have contributed hugely to the way we approach sustainable investment, particularly as it relates to engaging with our investment companies in emerging and frontier markets.
"We are delighted AP1 is seeding the Somerset EM Future Leaders Fund, which will provide daily dealing access to the strategy, and we look forward to collaborating with other institutional investors in Europe, Asia, Canada and the rest of the world."