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Eric Schleien discusses value investing, rational investment analysis, and vital mental models.
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Tuesday Nov 10, 2020
Tuesday Nov 10, 2020
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Don's Proposal
PROPOSAL THREE
(Non-Binding Stockholder Proposal)
THAT THE BOARD SEEK AND PURSUE ANY AND ALL MEASURES TO ENHANCE SHAREHOLDER VALUE
A stockholder, Donald Chambers, submitted the following proposal for inclusion in the Company’s proxy materials. If the stockholder, or a representative of the stockholder who is qualified under state law, is present and properly submits the proposal for a vote, then the proposal will be voted on at the Annual Meeting. The Board of Directors unanimously recommends that you vote AGAINST the proposal. The proposal and the stockholder’s supporting statement, exactly as received from the stockholder, are set forth below and are followed by the Board’s explanation of its reasons for opposing the proposal. As an advisory vote, if approved, the stockholder’s proposal would be a non-binding recommendation to the Board of Directors. The Company will provide Mr. Chambers’s address and number of shares held promptly upon oral or written request.
STOCKHOLDER PROPOSAL
RESOLVED: That the shareholders of SVVC assembled at the 2020 annual meeting in person and by proxy, hereby request that the Board of Directors of SVVC seek and pursue any and all measures to enhance shareholder value including: (1) orderly termination of the fund, (2) orderly liquidation of SVVC assets with distribution of available cash to shareholders, (3) tender offers for SVVC shares using available cash from any and all investment exits, (4) merger of the fund into an entity offering shareholder exits near NAV (net asset value), or (5) other measures likely to allow shareholders to exit SVVC near its NAV.
REPRINTED SUPPORTING STATEMENT FROM STOCKHOLDER
I urge shareholders to vote “Yes” to this proposal for the following reasons (based on information, belief and personal computations):
The performance of SVVC’s stock has been catastrophic relative to relevant benchmarks. The total annualized compounded market returns of SVVC and three relevant benchmarks over the life of SVVC are:
|
Ticker |
Description |
Annual Return |
|
VT1 |
Total stock market ETF |
9.5% |
|
VB |
Small stocks ETF |
8.0% |
|
SPBDCUP |
S&P BDC Index |
6.3% |
|
SVVC |
-8.9% |
Basing SVVC’s return on its recent NAV generates a positive return (4.8%). But that highlights the crux of the problem: SVVC’s NAV overstates its value under current management because it does not fully account for prospective fees and expenses. SVVC’s market price does reflect the massive fees and indicates a loss of -8.8% per year. SVVC’s 2% annual management fee (on gross assets) is roughly a 7% annual fee based on the market value of the equity. SVVC’s most recent statement reports $908,003 as the quarterly management fee (which is over 50 cents per share annualized). There are additional expenses and a 20% incentive fee on realized net profits. Accordingly, the discount of SVVC’s market price to its NAV has been very large - recently well over 50%.
The annual rate of compensation to each of the four independent directors of SVVC is $50,000 per year yet, reportedly, only one director held SVVC stock and that director held only 700 shares (see SVVC Proxy Statement 5/30/19).
Assuming that SVVC’s valuations of its private investments are reasonable, the Directors should be able to locate private equity investors enabling SVVC to be liquidated at a value near to its NAV.
Disclosure:
Mr. Chambers is a part-time employee (CIO-Model Portfolios) of Biltmore Capital Advisors (BCA) which manages approximately 292,254 shares of SVVC on behalf of its clients. Mr. Chambers has recused himself from all decisions at BCA regarding SVVC transactions or voting while this proposal is under consideration. SVVC is a restricted security for BCA employees so Mr. Chambers is restricted from transacting in SVVC while this proposal is under consideration.
About Don Chambers
Donald R Chambers currently runs the website, SaveFirstHandTechnology. He is also a recently-retired (June 2017) professor of finance with 36 years of teaching experience. Dr. Chambers has written several books regarding investments and personal finance that are distinguished by their clear writing and ability to make difficult concepts accessible to his audience. He is the lead author of the 600+ page Modern Corporate Finance: Theory and Practice which is in its eighth edition (forthcoming with FlatWorld), the 1,000-page Alternative Investments which is in its third edition with Wiley, and several other books on finance. Dr. Chambers has published over 50 scholarly articles.
Dr. Chambers has had numerous appearances in media including national television, national public radio, regional television, and regional radio. Dr. Chambers co-starred in a nationally-televised cable television series regarding finance in 1988 (45 Fortune) and frequently serves as a public speaker.
In more recent years, he has written numerous blogs and spoken frequently regarding investments in his role as Chief Investment Officer of Biltmore Capital Advisors.
About Eric Schleien
Over the past decade, Eric has trained thousands of individuals including board members of public companies as well as several Fortune 500 CEOs. Eric specializes in organizational culture and has become a leading authority on organizational culture in the investment industry.
Eric has been investing for 15 years and has been using breakthrough coaching methodologies for over a decade. Eric had the insight to combine proven coaching methodologies with shareholder activism techniques to create an entirely new model for shareholder activism that was more reliable and created greater sustainable results in a rapid period of time. On average, Tribal Leadership produces a 3-5x increase in profits of culturally troubled companies within an average of 24 months or less.
Eric currently resides in Philadelphia, PA.
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