iCapital's Integrity Issue Gets Highlighted Again!

Blogger Seng has highlight this issue also on his blog: Sunday, ICAP vs icapital: Fund Manager vs Advisory Service Provider

Seng touches on the very urgency of this issue.

• Can we rely on our regulator to fix this apparent anomaly up?
  
  For example, has icapital crossed the line that allows regulator to take action?
  
  And what about icapital subscribers - have they suffered losses holding on to their stocks because icapital continued to call them a Buy/Hold?
  
  They paid good money for the services.
  
  Should all of these subscribers be made aware of this apparently anomalous action - that when icapital calls a Buy, the ICAP fund can also be actually Selling the same stock at the same time?
  
  Should regulators insist on this "Disclosure"?

Yes, how could the investment advisory maintains a BUY recommendation despite the fact that its fund management is SELLING that very same stock at the same time?

Where is the more ethics towards its readers, its subscribers who, as Seng pointed out, has paid substantial money each year?

Put it this way, if the fund management sees justified reasoning to SELL the stock, the investment advisory, from this very same company, should never contradict its fund management. Yes? This is what I strongly believes in. The investment advisory should always be true to its readers.

And if you read the blog posting again, iCapital: How Independent Is The Advice When They Hold Vested Interests In The Same Shares They Are Advising On?, I have highlighted what has happened to the said stocks after iCapital's disposals.

I have received other comments too which I want to highlight here for easy reading.

see said...

• Why don't anyone as a shareholder of icap just ask TTB point blank at the AGM about this issue. From my experience, TTB will be so long winded but vague on his outlook on the market in his publication then weeks later he will proclaim his outlook was correct but when I re-read what he wrote, he did not state clearly his outlook. Eveything so vague like "on one hand....on the other hand...." kind of writing& oh yes, he thinks very highly of himself, why do u think he prefers to hire fresh know-nothing grads other than grossly underpaying them. Meetings can drag on 3hours+ with him doing a monologue....yes, he is very arrogant but if his performance is good then I think he has earned bragging rights. On the deceit issue, wonder if it contravenes any SC rules ie talk up the market ....maybe someone should shed some light here.

I replied.

• Interesting comments.
  
  ....yes, he is very arrogant but if his performance is good then I think he has earned bragging rights.
  
  Hmm.. bragging rights because he is good?
  
  For me, yes performance as a fund manager is important but what is being done earns zero respect from me.
  
  The fuzziness between their investment advisory and their fund management is simply a farce.
  
  Where is their moral integrity as investment advisor when they can tell their readers to buy a stock while at the very same time, the fund management finds a justifiable reason to sell that very same stock?
  
  I would not be proud of myself if my performance is achieved in this manner. In fact, I will be deeply ashamed!

alpha said...

• Hi Moolah,
  
  You did a great job on ICAP. From my experience working with him, I didnt see the motto "independence, intelligence and integrity" in him. BUT I would like to stress that there are a lot more fun managers who are worse than him.
  
  SC should play a bigger role in bringing this issues to the light but it seems SC is doing its job half-heartedly. Things in Malaysia are not going to change if the regulatory bodies are not being made independent. This is more than just a transparency issue.
  
  What best we can do is do our own analysis? But even fundamentals can be faked? I have lost trust on analysing fundamentals of malaysian companies. Learning Technical Analysis would be a good way to insure ourself from unnecessary risks.

The Madviruz said...

• Is this the only instance of conflict of interest? No!
  Is it restricted only to Icap? No!
  Will this be the last? Again no! Will it continue? Oh, Yes!
  
  The so call interviews and expert opinions are usually a sham especially when the markets or stocks are at their turning points. Their aim is to get in or out before the public does.
  
  The most critical part of fund performance is to exit at the prime point in time; frequently the media amplify and assist them to stir or fry up demand for their exit.
  
  Independent report? or Con job?

Opine said...

• Hi Moola,
  
  With regards to your gripe, "Again my issue is very simple, how could the investment advisory make a totally independent investment advice when the very same company owns interest in the very same share?!"
  
  Maybe it's part of their "contrarian investing" strategy.
  
  On another note, an interesting article did come to mind :-
  
  Dare to be contrarian
  http://thestar.com.my/news/story.asp?file=/2008/3/8/bizweek/20548655&sec=bizweek
  
  Some noteworthy phrases from that article include :-
  
  -“Firstly, the subprime problem remains just that – subprime. Secondly, while many large financial institutions have been badly hit, the central banks have successfully averted a credit or liquidity crunch scenario. Thirdly, the US economy is certainly slowing down but a recession is only a possibility, and not certain.”
  
  -He says that many American companies are still producing stellar results, as their earnings are derived outside of US. Boeing for instance, is selling its planes to Asian and Middle Eastern companies. General Motors, Volkswagen and Tesco, are also international companies that have seen their profits rise despite the slowdown in the US economy.
  
  -“So what was essentially a two year old story was blown out of proportion, although on the level of the real economy, where businesses are actually running, the conditions are more or less normal.”
  
  -“The subprime problem is close to its peak. Banks have written off the debts and are now more transparent about their exposure to subprime. Most of the major losses have been announced. There may be one more round in the first quarter but after that, the worst should be over,” says Tan.
  
  -“It is time to be getting more optimistic on the US housing industry. While property prices generally may remain under pressure, housing starts should be behaving differently. To me, the risk to the US economy is on the upside,” he says.
  
  ------------------------------
  
  And many more numerous interesting snippets.
  Do not that the article was dated 8th March 2008.
  
  Well, one can construe whether whatever he said then rings true now, just about 5 months later or have things really gone from bad to worse.
  
  Latest updates on subprime and mortgage issues include, Fannie and Freddie reported or will be reporting huge losses, Citi and Merrill are being effectively "forced" by regulators to buy back billions of illiquid auction rate securities.
  We all know what happened and is still happening to GM.
  
  One can conclude that not only should they not hold vested interests in shares that they are advising about but also that their "contrarian" advice is really contrary to understanding the global economic situation.
  
  To put it simply, if they had followed their own advice then, they would be sitting on huge losses now.
  
  My two cents.
  
  Thank you.

My reply to Opine,

• Dearest Opine,
  
  One can conclude that not only should they not hold vested interests in shares that they are advising about but also that their "contrarian" advice is really contrary to understanding the global economic situation.
  
  Comments: Perhaps they really should evaluate this dual role of investment advisory and fund management in their group. Surely, the company has got to give up one of their role.
  
  I, for one, simply cannot understand it. If they can make so much money managing money, why does the company desperately want to maintain their investment advisory business?
  
  I really wonder why?
  
  Could it be that their investment advisory plays such a massive role in supporting whatever stocks the fund purchases?
  
  I wonder.

alpha said...

• Hi Moola,
  
  Interesting and provocative question on why does ICAP provides both investment advisory and fund management services. I think we all know the answer. This is just part of the game being played. ICAP is a very classic and obvious example.
  
  If you do a simple calculation on ICAP earnings (including investment advisory), the owner probably makes at least RM2-3 million a year. Not too bad for a fund manager like TTB with the bulk of commission also going to his pocket through his wife's remisier account. Mind you, CEOs of top notch companies in Malaysia are only getting around RM1 million a year.
  
  I urge the readers to do their own homework before investing in any stocks. Blindly following TTB is not the way for becoming successful in investing. Yes, there are a lot of crooks or fun managers out there who dont even bother to take risk and invest their own money into the fund, BUT you are responsible for what you are making.
  
  I suggest one read a book called "Market Panic", very enlightening for those who are interested in contrarian investing and understanding the game behind markets. Always remember, the market is a place for sharks to make money from the small fishes. Swim with shark if you wish to make money.
  
  Moolah has done great jobs in educating the public about serious investing. We all shall be very grateful with bloggers like him around.
  
  Thank you, Moolah.

Seng said...

• Dear alpha,
  
  I read with interest your comment which I quote here "...with the bulk of commission also going to his pocket through his wife's remisier account...."
  
  As I peruse ICAP's 2007 Annual Report in detail, I could not find this information being publicly disclosed in that report.
  
  To be fair, can you disclose the source of that data, that ICAP uses TTB's wife remisier account and thus pocket commissions?
  
  I think before we can make judgements, it is important to also consider the level of brokerages too - a discount may send a different type of message than a premium to market averages.
  
  Seng.

alpha said...

• Thanks for query. I dont have any hard and fast info to tell you that the commissions were pocketed by him.I am not sure and I have no idea of the quantum or the spread involved. Legally, I would think it seems alright as his wife would probably offer better rates.
  
  But it's purely my speculation. Therefore, I am ready to retract the "dubious" statement above to avoid confusion to readers. I'll be more objective and cautious in giving out comments next time.
  
  And I wish to reiterate that please do your own homework before investing. Fun managers are part of the equation. There are good and bad ones. TTB, although appears to have some sort of vested-interest business model, but somehow he has managed to beat the average fund managers out there.
  
  "Trade and invest at your own risk and never trust anyone (including myself)."
  
  I would love to share this quote with you all. From the legendary free-market economist, Adam Smith:It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. Self-interest takes precedent for everything that happens in the world.

Comments:

Regarding Alpha's comments on the commission issue.

Since Alpha has not able to provide any proof, and Alpha has admitted that it's purely his speculation. I need to be fair to Mr.Tan and inform all readers to take note of this issue.