Thursday, 20 November 2014

iCapital: questions regarding adjourned AGM and expenses

iCapital's AGM was recently adjourned. That in it self is already quite unusual. AGMs cost money and time, surely there should be a good reason to ask for an adjournment.

According to an article in The Star (some snippets):

During the Oct 11 AGM, the resolution was not tabled, as shareowners holding a 11.39% stake had already indicated their intention to vote against it two days before the shareholders’ meeting.

“The real issue is whether the 11.39% should control icapital. If they can block the reappointment of one director with only an 11.39% share ownership, what is there to prevent them from abusing their power again?”

Did Tan Teng Boo really say "abusing"? If a shareholder (in this case most like a fund) votes in what it thinks is the best way, can that be labelled as "abuse"? Most likely they simply act in the best interest of their investors. Is there any rule that they breached?

"He said shareholders who opposed the resolution should issue a statement on their rationale for doing so, even though it was not required from a procedural and legislative perspective."

I can't recall ever any meeting being adjourned to ask one of the shareholders for the reason of its voting. And why should shareholders issue statements on their rationale? I am sorry to say, but this sounds beyond weird.

Another matter is that I always regarded Dr Tan as being "stingy", that is, "stingy" in a good way, like Warren Buffett being notoriously stingy in spending. Examples are the cost to list iCapital (which was probably a record low for any Bursa listed company), its year report (without any photo's or colours), etc.

To my surprise, things have rather changed, from the 2014 year report:

Advertisements shooting up from 21K to 708K, AGM expenses increasing from 99K to 452K (and most likely increasing again due to the extra AGM needed). Those are strange increases in expenses, atypical for Tan.

Total operational expenses are RM 8.6M, after deducting the 514K for impairment RM 8.1M. On a fund of RM 426M that means 1.9% expenses. That is still considered ok.

But when one realizes that a whopping RM 240M is simply held in cash (one doesn't need a degree in Rocket Science to manage that), then expenses seem to be on the high side.

I own a managed account where the fund manager only charges fees on the invested part (excluding the cash). If we use the same formula for iCapital then the expenses on the RM 186M investments suddenly are a whopping 4.4% per year, much too high for my liking.

These expenses would also explain (partially) the underperformance of the fund, about which I wrote before.

An interesting discussion on this stock at LowYat forum.

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