Open letter to iCapital.biz Berhad

Below is a open letter from Tan Tuan Phin who contacted me and asked me to publish the below letter. I hope many people can attend the AGM and vote according to their opinion, and possibly voice their concerns (if any). 

To ICAPITAL.BIZ Berhad,

Being a shareholder which owns 274,300 shares not including the shareholdings of my close family members, I wish to voice out my concerns regarding about the recent performance of ICAPITAL.BIZ BERHAD and wish it can be discussed in the Q&A session in the coming AGM on 24 September 2016.

Sadly I am not able to attend the AGM due to another appointment on 24 September 2016.

You may refer to my enquiries to ICAPITAL.BIZ Berhad as follows:

1)      Relative Poor Performance of the Fund from 2011 to 2016

ICAPITAL.BIZ Berhad		2016	2015	2014	2013	2012	2011
Cash Level		303,481,263	257,951,378	240,390,544	208,005,028	133,735,511	115,907,950
Investment		126,022,371	145,596,798	185,731,507	209,700,211	262,657,722	270,506,528
Total Valuation		429,503,634	403,548,176	426,122,051	417,705,239	396,393,233	386,414,478
% Cash VS Total Valuation		71%	64%	56%	50%	34%	30%

Based on the figures extracted from the annual report, the Compounding Annual Growth Rate of total investment plus cash and cash equivalents since year 2011 to 2016 is performed poorly at a CAGR of 1.78% per annum which is almost equivalent to non-performance at all or in another terms, basically wasted 6 years opportunity to grow the fund for the benefit of shareholders. Not every shareholders have a lot of 6 years to wait.

Kindly address and explain why has the fund performed so poorly for the past 6 years.

2)      Increased Management and Advisory Fees

ICAPITAL.BIZ Berhad	2016	2015	2014	2013	2012	2011
Management & Advisory fee	6,150,684	6,374,708	6,218,982	6,179,782	5,789,726	5,105,346

The management & advisory fee has been increasing at an annual compounding rate of 3.15%, while the performance of the investment fund is only growth at CAGR of 1.78% as highlight in my question No. 1. The growth rate of management and advisory fee is not in-line with the growth of the fund, while the growth pace of management & advisory fee is getting higher than the fund’s performance. (CAGR of Management & Advisory Fee = 3.15% > CAGR of Cash plus Investment = 1.78%)

Kindly address and explain why the CAGR of the increase in Management & Advisory Fee is higher and comparatively faster than the CAGR growth of the Cash plus Investment of ICAPITAL.BIZ Berhad.

3)      Increased in Impairment Loss on Investment

ICAPITAL.BIZ Berhad	2016	2015	2014	2013	2012	2011
Impairment loss	12,506,585	2,392,124	513,988	-	-	-

The impairment loss of the fund’s investment has been on an increasing trend. Especially for Boustead Holdings Berhad which is currently sit at an unrealised loss of RM2,177,080 and yet to be impaired.

a)      What is the rationale for not impairing the remaining RM2,177,080 of Boustead Holdings Berhad although almost similar amount (RM2,392,124) has being impaired for Malaysia Smelting Corporation Berhad? Does this practice comply with the Malaysian Financial Reporting Standards?

b)      The Fund has great opportunity to sell both Boustead Holdings Berhad and Parkson Holdings Berhad during year 2011 where both companies’ share were valued at peak of RM40,073,148 and RM54,901,782, however, the opportunity was not properly seize by the management and resulting in significant losses after 5 years.

Did the management of ICAPITAL.BIZ Berhad constantly followed up on the companies in their portfolio such as regular company visit or meeting with their management?

What are the policies and steps to be taken by the management to avoid making such wrong decision in future?

4)      Comparison of ICAPITAL.BIZ Berhad vs Berkshire Hathaway

As at 31 July Each Year	2016	2015	2014	2013	2012	2011
Berkshire Hathaway ($)	216,000	214,000	188,124	173,900	127,445	111,500
ICAPITAL.BIZ Berhad (RM)	2.29	2.28	2.46	2.40	2.24	2.16

After peruse through several years of ICAPITAL.BIZ Berhad’s annual report, I noticed that the management loves to compare the Fund’s performance against Berkshire Hathaway since both funds are closed-end fund.

The table above clearly explains the significant gap in performance of the both fund. If a person invested in both fund respectively, the CAGR of Berkshire Hathaway’s Share is 11.65% compared against the relative sluggish performance of ICAPITAL.BIZ Berhad’s 0.98% from year 2011 to 2016.

Which means ICAPITAL.BIZ Berhad has not performed at all for the past 6 years. This lead us back to the justification whether the management and advisory fees are commensurate for the poor performance of ICAPITAL.Biz Berhad.

Kindly address this issue and advise the management next course of action in order to improve in the Fund’s performance or reduce the management and advisory fees that reflects the actual performance of the fund.

Does the directors of ICAPITAL.BIZ Berhad review the fund manager performance in a periodic basis? What is the directors’ yardstick on the measurement of fund manager’s performance?

Or in a much serious scenario, if the fund still perform poorly in the coming years, have the board ever consider replace the fund manager or liquidate the fund that will give a higher return for the benefit of shareholders?

Regards,

A Very Concerned Shareholder

Tan Tuan Phin