Thursday, 8 November 2012

iCAP closed end fund manager responds to Laxey Partners accusations

My comments:

Actually, those who are disgusted with ttb or iCAP can choose to sell their shares.  I think this happened all the time.  Those who favoured ttb or iCAP may be the buyers of these shares.  I think this happened all the time.

The issue facing iCAP shareholders this Saturday is quite different.  Laxey Partner has amassed a sizeable stake in iCAP.  As a shareholder, they rightfully can request for changes.  However, their motives may not be fully aligned to many long term shareholders of iCAP.

They are invited to state their case.  How can they hope to reduce the market price - NAV gap?  I thought this was a stupid thing really.   This gap exists because of various factors.  They should propose how they hope to reduce this gap without liquidating this fund.  

Share buyback?  Will this work?  Doubtful ... 
Dividends?  Why?  I would rather have my funds retained in iCAP to compound at a high rate of return.

As I have written earlier, ttb and his board of directors (hopefully they will be retained at this AGM) should stay focus on the performance of the NAV of this fund rather than wasting any time worrying over the market price - NAV gap of iCAP which I feel they have little or no control over.

If Laxey Partner wishes to pay a price closer to the NAV price, this gap would have narrowed.  On the other hand, it was also this discount that allowed them to buy into this fund in the first place?  Now they are going for their exit strategy.  They are invited to be long term investors in this fund, just like the rest.  Hope this will be realised on Saturday.   Handshake Cash

Also read: 

Tan confident of support from shareholders to against Laxey


Peter Lim said...

If you have invested in ICAP on 11th Jan 2008, you would have paid RM 2.78 per share for it, while its NAV is RM 2.22 . Over the next 4.5 years, the NAV risen from RM 2.22 to RM 2.94 on 22nd June 2012, for a total growth of 32.4% during this period.

But the same can't be said to your return as a shareholder during these period. The market price on 22nd June 2012 is only RM 2.15, giving you a return of negative 22.7%.

Why is NAV grows 32.4% during these period, while your return as a shareholder is -22.7% ?
It's because at the time of purchase, you're paying 25.2% PREMIUM over NAV, and at the time of sale, people is paying you 26.9% DISCOUNT over NAV.

While buying at discount to NAV is good, it is at the expense of the seller. So is vice versa to buying at premium.

Thus, the best way to be fair to both buyer and seller for the fund to trade close to its NAV, and the best way to achieve this is to have a policy by ICAP to ensure that the gap between NAV and market price isn't wide (say, anything more than plus or minus 5%).

Data available here:

And the reason i vote for Laxey is because i'm voting for the gap between market price and NAV to reduce to be fair to both the buyer and seller. Although i know most of you are long term investors, but should you decide to sell one day, you would want to sell at a fair price, don't you?

Just like in Politics. Many vote for PKR not because they want Anwar. But it's because they want "change".

TTB, hope you'll close the gap by setting policy in place.

investbullbear said...

How can Laxey Partners hope to reduce the market price - NAV gap?

They should propose how they hope to reduce this gap without liquidating this fund.

investbullbear said...

The price of a closed-ended fund is tied to the market value of the underlying securities. But it doesn't match NAV exactly. There is no process to peg the price to the NAV daily.

Instead, the price is set by the market, based on supply and demand for the shares of the fund. In a sense, a closed-ended fund is a set of securities within a security - a basket of fluctuating stocks trading inside a traded stock shell.

Closed-end funds provide investors with 2 ways to make and 2 ways to lose money:
- The underlying value of the securities portfolio changes.
- The market's assessment of the value of the portfolio changes, which usually creates a discount or premium to portfolio value in the price of closed-ended fund shares.

How do Laxey Partner hope to reduce the market price-NAV gap of iCAP?

investbullbear said...

Your example of buying iCAP at a high premium and now having to sell at a discount should you wish to cash out is only reflecting the rationality or irrationality of the participants of the market. I believe you and I can influence this but minimally, if at all, and not without its controversies. A good company can be a poor investment when you overpay to own it.

Patient value investors seek not only a good price (meaning a good discount), but also a fund with solid long-term potential.

Many pros use closed-ended funds, including Warren Buffett. Here was what Warren Buffett did when he bought into a closed end fund.

In 1972, Source Capital was trading at nearly a 50% discount to NAV. Buffett purchased almost 20% of the outstanding shares.

Though the price fluctuated in the interim, Buffett hung in for 5 years before selling for an estimated $15.7 million profit.

He was patient and cashed out 5 years later. Likewise Laxey Partners too can emulate Warren Buffett, be patient.

bc said...

On 9 Nov Star in an apparent rebukes to Laxey earlier press statements that TTB had overtsated performance vs that of KLCI benchmark as the index ( used by TTB) was not adjusted for dividend yield.

TTB said: "Despite the fact that the FBM KLCI pays dividend, its performance has lagged that of, which is a non-dividend paying fund, as can be seen from its first annual report of 2006. If the KLCI pays no dividends, its underperformance would be even worse,”

If TTB uses the KLCI index without adjusting for its dividend he is overstating performance(against the understated KLCI since KLCI has a dividend yield). If this is not true than he should answer this straight to the point. Instead what he say is rather confusing and misleading.

What is your understanding?.