Year in Review – November 2017

Year in Review

The end of a year marks a period of reflection for what has been accomplished, and preparation for what is to come. As we look back at 2017, we feel very good about the progress we have made. We have upgraded our portfolio, developed our team, launched new Data Science projects, reduced fund costs, and built strong constructive relationships with the management teams of our portfolio companies.

Some of the highlights of the year include:

▪ Portfolio: 2017 was the most fertile year for idea generation in our career. We generated many high quality new investment ideas that upgraded our portfolio. Therefore, the expected portfolio risk-reward is currently at the highest it has been throughout the year despite the positive performance delivered so far. This makes us very optimistic for the future.
▪ Team: We have a very senior team at Somar. The team has great rapport and morale is high. Each of us embodies the Somar culture – honest, humble, hungry – and looks for opportunities every day to improve the returns and service to our investors.
▪ Primary Data Research: We are conducting data research projects on 17 companies. Projects include investigative reporting, online engagement analysis, store development tracking, price comparison and SKU range checks. I would like to thank Jason Gans for leading this effort together with two Master’s students from New York University – Jessica Lin and Cheng Bi – who have expanded our Data Science capabilities.
▪ Asset base: Our investor base has been extremely supportive, with many of you sizing up your original investment. We have steadily increased our AUM throughout the year and have recently crossed $40mn in assets under management. In addition, our institutional class (please see the next section) is attracting a lot of interest both from existing and new investors. We see continued progress in the months ahead. I would like to thank Colin Butler for his support in communicating our vision and progress with all of you.
▪ Management Engagement: Throughout the year we have built and deepened constructive relationships with the management teams of a meaningful number of companies in our portfolio. This dialogue has a double benefit for us. First, it allows us to provide value creation suggestions that benefit all of us as owners and second, it allows us to assess each management teams’ ability to execute and adapt against evolving challenges and opportunities.
▪ Risk Management: Our risk has been managed within our tolerance limitations throughout the entire year. Our individual and aggregate exposures have stayed within our limits. There were no breaches of our internal triggers for either an individual position or the portfolio. While we are encouraged with this performance we remain duly vigilant for new sources of risk in the portfolio.
▪ Cost base: We have maintained a rigorous discipline in non-value-added costs which has allowed us to reduce the Fund’s monthly expense ratio by approximately half of what is was at the start of the year. In addition, the management company has operated above breakeven throughout the year. As we say in the office, we are building Somar to be around for decades, not years.
▪ Operations: Joe Yankovich runs a first-class operation. Cash and positions are reconciled daily. We have finalized the NAV 6 days after month end on average. Joe took the lead in executing the launch of our new Institutional Class. Finally, he answers your questions and clarifications in an accurate and timely way, as you may have seen from firsthand experience.
▪ Board: I would like to thank Jennifer Collins and John D’Agostino for their frequent and insightful feedback. Both have made a significant contribution to the firm and helped the Somar team build a best-in-class operation.
Our roadmap for 2018 is very strong. We believe we will continue to improve at a brisk pace throughout the new year on all these areas. We look forward to continuing updating you on our progress and milestones in the new year.
Institutional Class
In response to suggestions from some of our Investors we have decided to launch a new class. We believe this is a unique opportunity that will benefit all our investors.
The Institutional Class is available in two formats1:
A. For Investors that subscribe a minimum of $10.0 mn, we offer a 1.0% management fee and 10.0% incentive allocation.
B. For Investors that subscribe a minimum of $5.0 mn, we offer a 1.5% management fee and 15.0% incentive allocation.
The Institutional Class is open until the earlier of June 2018 or when we reach $100 mn of AUM.

Our existing investors will benefit from the Institutional Class in two ways:
▪ Increased assets will allow us to reduce our expense ratio and therefore reduce the difference between our gross and net returns.
▪ Increased assets will allow us to reach $100 mn of AUM faster, triggering a reduction in the management fee for the Founders’ Class from 2.00% to 1.75%
We are offering our existing investors the opportunity to roll their existing Somar investment into each of the above classes if they reach either of the minimum subscription amounts.
The response to this new class has been extremely positive and we have a good number of ongoing conversations. Please feel free to reach me or Colin (colin.butler@somarcap.com) if you wish to learn more.