Saturday, 12 September 2015

iCapital: "Ostrich policy" will not solve the issues (2)

In addition to my previous posting on this subject, "Kian Wei" has reposted it in his category "Good articles to share" on Both postings received quite a few comments by readers.

"Wilson Tan" has published this link on the Facebook page of Capital Dynamics, on which the company reacted:

The reaction seems rather strange, although less so in the Malaysian context where "shooting the messenger" seems to be the national pastime (anyone following the recent Malaysian scandals will agree with that, I guess).

What does it matter who I am, how many shares I have, when I bought them, at what price and at what exchange rate? People must first give a detailed description of this before they can raise an issue?

Regarding who I am, I have a profile on my blog. I am writing this blog because I am passionate about corporate governance issues in the Malaysian context. I don't make any profit whatsoever on it. There is also no hidden agenda, I write how I see things.

Regarding most companies that I write about I don't have a position, in iCapital I do however, which I announced. I own 200,000 shares of (I guess Capital Dynamics could even have checked that themselves), some family members and friends have smaller positions, some sold them because of the disappointing results in the last years.

Does the above information change any of the issues raised in my posting? I don't think so. What matters is the issues itself.

But not a single answer is given about these issues, despite the claim that all of my postings about iCapital are "slanted and biased" according to Capital Dynamics. One would have guessed that it would be easy to give some examples of that, or at least a hint.

Another rather disturbing comment by Capital Dynamics, again in the "shoot the messenger" category:

"Dear Wilson Tan, according to the industry in London, City of London uses a "whispering campaign" tactic on funds that they attacked. They use social media, traditional media, etc and not disclose their hidden agenda."

There might be some suggestion that I am connected to City of London. Just to be clear, I don't know City of London (or Laxey for that matter), have never contacted them, met them or corresponded with them in any way, shape or form.

City of London has published a letter on August 28, 2015 which can be found here.

Some snippets:

CLIM [City of London Investment Management Limited] is opposing the re-election of incumbent directors because of the Board's inadequate response to ICAP's poor performance and persistently wide discount to NAV.

ICAP's total return NAV performance in the five year period 2 June 2010 to 29 May 2015 is +43.8%. This appears respectable compared to the capital only FBMKLCI +35.6% but it is profoundly disappointing compared to the FBMKLCI total return +60.4% (source: Bloomberg). Shareholders are given no explanation of this poor result from stock selection over this longer period.

The five year index total return referenced above, equivalent to a satisfactory 10% pa, indicates that shareholders would have benefitted overall from a fully invested strategy. ICAP's high cash holding throughout this 5 year period suggests a lack of skill in respect of market timing and a limited ability to identify undervalued assets. In these circumstances it is questionable whether ICAP should be incurring fees on cash.

ICAP's expense ratio in 2015 was 1.9% (total expenses as a percentage of the average of opening and closing shareholders' equity) which compares unfavourably with other country specific closed-end funds. In view of ICAP's poor NAV performance it is also pertinent to compare total expense ratios less than 0.5% pa for exchange traded funds that give investors Malaysian equity exposure. Boards have a duty, in CLIM's opinion, to negotiate competitive fees.

ICAP's original prospectus explained clearly that the return for closed-end fund investors is a product of NAV performance and the discount movement. The 2015 Annual Report does not refer to the impact on shareholders' overall return of the discount, which widened over the 12 months ended 31 May 2015 to 21% from 17%, and averaged 20%. Over five years to end May 2015 the discount has also averaged over 20% (source: Bloomberg).  The Board has failed to take any action to address the discount which has, in our opinion, been unacceptably wide. CLIM notes that ICAP's prospectus included a narrative on the tools available to Boards to narrow or eliminate the discount, including share repurchase, open-ending and liquidation. This section in the prospectus also referred to the possible replacement of existing management.

We are dismayed by the reference in the Chairman's 2015 Letter to  Share Owners, to 'investors with shorter-term focus to start requesting our Fund to look into other shorter-term options which do not benefit share owners in the longer-term'. ICAP's performance has been disappointing over the past five years and CLIM regrets the Board's unwillingness to engage with its shareholders to explore possible solutions to this problem. 
For the avoidance of doubt, in respect of its investment in ICAP, CLIM is not and never has acted in association with any other ICAP shareholder. CLIM is a long term investor in closed-end funds and first purchased ICAP shares in May 2010. In the interests of full transparency this letter is being made public.

In "digitaledge weekly" of September 14, 2015 (pages 18 and 30) a long article on the same subject:

" largest shareholder says fund fees high, to vote down director appointments"

It is noted that "Advertising, AGM and 'other' expenses have been rising at ICAP".

And "shareholders might want to ask how the fund's spending compares to what its manager spends on the same effort and how the spending fits the closed-end fund's goal".

Will we finally get proper answers regarding the issues raised?


  1. I have no regret selling all my Icap shares except for 100 shares about 4 years ago. After seeing how he treats the shareholders, I am assured that I have made the very right decision.

  2. Agreed.

    Spent a lot on special document posting to shareholders benefiting the management.
    Should return more cash to shareholders or share buyback.
    Management fee high, most assest are cash, need so high fee to manage cash?
    Performance not so good.
    Support City of London.

  3. I have followed Capital Dynamics on Facebook. The way the author posts stuffs, it seems to me the person is somebody that you and I and other shareholders do recognize.

  4. It is indeed a sad state of affairs

  5. When the country not performing and there was issue on 1MDB, we can see racial cards being played to divert attention, including ex-director of Icap Tunku Aziz

    Sound familiar here?

    When Icap didn't perform well, City of London was the target to divert attention of its unexciting fund performance.

    This was one of their replies in facebook:
    "It is certainly their choice. We are both on the same side - by this we assume that we want this home country of ours to be really successful and not to allow a divide and rule policy to dominate our home."


  6. Highly immature response from the company. Why do you still hold when management behave like this?

    1. Good question, holding already for too long, if no discount to NAV I would already have sold