I welcome shareholder activism in iCAP. This can only be good for this fund. However, given the short notice of this new development, it would be good to understand the issues deeper.
Questions I pose to myself:
- Has iCAP outlived its usefulness and its breakup or liquidation be beneficial to existing shareholders for the long-term??
- Has iCAP managers proven themselves incapable of making a decent return?
- Would iCAP having a dividend policy be beneficial to the long term investors of this fund?
- Would iCAP buying back its own stocks that are trading at a discount necessarily improve market price of its stock?
1. Has iCAP outlived its usefulness and its breakup or liquidation be beneficial to existing shareholders for the long-term??
iCAP was started in 2005 with a set philosophy laid down by Tan Teng Boo. The early investors of iCAP subscribe to his philosophy. The fund was set up to enable small shareholders to invest in the stock market managed by a proven fund manager. There is a need for such fund to exist. Therefore, iCAP plays a useful role for those small or big investors whose investing philosophy are aligned with that of Tan Teng Boo, its fund manager.
Therefore, my answer to Question 1 is NO.
2. Has iCAP managers proven themselves incapable of making a decent return?
We should be wary of short term performances of funds or any investing. The market volatility can be such that the performances of the short term can fluctuate widely. Nevertheless, it is the long term return one should be focus on. On this point, iCAP has more than delivered on its promise at inception to those who are long term invested in this fund. It has delivered 18% compound annual return in its NAV since 2005.
Therefore, my answer to Question 2 is NO.
3. Would iCAP having a dividend policy be beneficial to the long term investors of this fund?
iCAP has delivered compound annual returns to its shareholders 18% since inception. Given its excellent performance since inception, it is rational and logical to retain all earnings to compound at these high rates of returns to grow your networth. In any case, this objective was stated clearly by Tan Teng Boo when he started this fund.
Therefore, my answer to Question 3 is NO.
4. Would iCAP buying back its own stocks that are trading at a discount necessarily improve market price of its stock?
Share buybacks offer advantages and disadvantages. However, these too do not guarantee that the discount to NAV of the fund will narrow either. It is not unknown that there are companies that bought back their own shares with little impact on their share price. In fact, for many, the stock prices even continue with their relentless decline driven by fundamental reasons. Share buybacks by companies of their own shares are not without their controversies and complicities.
Therefore, my answer to Question 4 is NO.
Tan Teng Boo should mobilise the investors who share his philosophy who are long term invested in his fund to defeat the challenge posed by Laxey Partner.
Hopefully, he will be successful. After having survived this in the 8th AGM, he will have time to rethink and continue taking this fund to a higher level of performance. It is far better for Tan Teng Boo and the Board of iCAP to concentrate on investment performance than to worry too much over how to shrink the discount to the NAV of the fund which they have some or little control over.