#124: Don Chambers - Update On SVVC Activism

11/10/20 • 19 min

Had the pleasure of bringing back on Don Chambers who is currently involved in an activist campaign against SVVC. To see the first episode where he discusses his ongoing battle with SVVC, you can click here. You watch this as a video on YouTube, click here. Show Links

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
4/28/2001
-10/24/2019

VT1

Total stock market ETF

9.5%

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 tea...

Don's Proposal

PROPOSAL THREE
(Non-Binding Stockholder Proposal)
THAT THE BOARD SEEK AND PURSUE ANY AND ALL MEASURES TO ENHANCE SHAREHOLDER VALUE

STOCKHOLDER PROPOSAL

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):

Ticker

Description

Annual Return
4/28/2001
-10/24/2019

VT1

Total stock market ETF

9.5%

Small stocks ETF

8.0%

SPBDCUP

S&P BDC Index

6.3%

SVVC

-8.9%

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:

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 tea...

Previous Episode

#123: Ann Hambly - 1st Service Solutions

In this episode, Eric Schleien sits down with Ann Hambly, the Founder/CEO of 1st Service Solutions. I'm a huge fan of Ann, as she transformed the CMBS industry and has also been impacted by the Tribal Leadership technology which I've shared about many times here, here, and here. As one of the managers of Brookfield Asset Management shared with me, "Transforming Culture is the last bastion of alpha due to the low competitive nature of the endeavor."

To watch this episode on YouTube, see below or click here.

Ann has been involved in literally every aspect of the CMBS industry throughout her 35+ year career. She created from scratch and ran many large servicing shops before creating 1st Service Solutions in 2005. She has been an intentionally integral part in shaping the CMBS industry since its inception.

Ann founded 1st Service Solutions in 2005 to address what she saw to be a gaping hole in CMBS. Unlike ‘on book’ commercial real estate loans, there is no ‘banker’ for the borrower to speak to after securitization. In creating what was to become the first borrower advocacy space in commercial real estate, Ann has grown 1st Service Solutions into what is now known as the preeminent CMBS Borrower Advocate practice. The company has been featured on William Shatner’s ‘Moving America Forward’ show as a company changing the business landscape in America.

Ann has been and continues to be highly involved in industry leadership as a featured keynote speaker at conferences across the country speaking on CMBS structure, CMBS workouts, assumptions, and hot topics in the general CRE industry.

With the release of her book, ‘CMBS 911,’ Ann once again set out to meet an unmet need: explaining, in simplistic and straightforward terms, the roles, responsibilities, and motives of every individual or entity involved in the CMBS process. “The whole process can be overwhelming and confusing for the borrower and there’s always a lot on the line,” she explains. The book has gone on to become an industry bestseller and is being adopted into the Purdue College of Business Real Estate curriculum as well as other colleges and universities.

In addition to her own book, Ann’s expertise has been featured in ‘True Leaders: How Exceptional CEOs and Presidents Make a Difference by Building,’ ‘Trends in Commercial-Mortgage Backed Securities,’ and ‘The Law of Distressed Real Estate.’ Ann is also a prolific contributor to many, many real-estate and business-related publications having published 50+ articles, commentaries, and columns in such publications as the Commercial Real Estate Show, the Commercial Observer, Scotsman Guide, GlobeSt.com, Mortgage Bankers Magazine, National Real Estate Investor, Real Estate Business, Real Estate Forum, and Reuters among others.

Jurists frequently request Ann’s involvement in high-profile cases regarding commercial real estate because of her vast and varied experience. She has been called upon to provide expert reports, depositions, testimonies, and professional consulting services on many high profile cases.

Ann is a member of the Board of Directors of the Counselors of Real Estate (CRE) and has been an active member of C12, a Christian CEO group, for the past several years. In addition, she has previously served on or as the chairman of the Board of Directors for the Mortgage Bankers Association (MBA), the Commercial Mortgage Securitization Association (CMSA), the Multifamily Housing Institute, and the Real Estate Capital Recovery Association (RECRA).

Throughout her lengthy career, Ann has received many, many professional awards and citations. Among them are the induction in the Commercial Real Estate’s Hall of Fame, numerous times designation as a ‘Legend and Woman of Influence in Commercial Real Estate’ by Real Estate Forum, named a ‘Top 10 Most Distinguished Women in Real Estate’ by the Mortgage Bankers Association, selected as a member of the prestigious Real Estate Roundtable, and named as one of six ‘Most Influential Women in Commercial Real Estate’ by National Real Estate Investor to name a few.

Ann lives in the Dallas/Ft. Worth Metroplex and enjoys time spent with her family, especially her six grandkids.

HELP OUT THE PODCAST

If you like The Intelligent Investing Podcast, please consider leaving a rating and review on Apple Podcasts. It takes less than 30 seconds to do and makes a huge difference! You can also join the Facebook page!

You can subscribe to the podcast ...

Next Episode

#125: A New Model For Shareholder Activism

Show Links

Took 9 Years To Develop

ProxyActivism is a project that has taken 9 years to create over the course of thousands and thousands of hours to develop, and finally launch. This blog post will go into the background into how ProxyActivism came to be, our process, how I see this project unfolding, and how you as a value investor can be involved (and no, for all you cynical fucks, I’m not trying to sell you something)

The Initial Insight

My idea for ProxyActivism started when I did an ontological leadership program with a former Vice President of Disney who decided to quit his job and devote the rest of his life to empowering people. I got more in a few days of intense Socratic style inquiry than in all the years of reading books combined. As someone who relied on books to “get ahead” this was a completely new paradigm for me. Within the next few months, my income tripled, I repaired relationships with the people around me, and produced many more results. I figured there must be some application to business as well. And it turned out my intuition was right. The company had a consulting arm. The consulting arm of the organization was recently named one of the top consulting companies in the world by Forbes. At a lecture I attended at NYU, the preliminary internal data at the company was that their average client experienced a 600% increase in profits within 12 months. I thought to myself, “I wonder if I could combine ontological coaching with shareholder activism?”

A Zero Competition Game

I figured this must have already been done and figured I would go work for a hedge fund already doing this and get some experience under my belt. However, after searching, I could not find a single hedge fund that was doing activism this way. Even the funds that talked about so-called “transformations” at companies - were really just doing more “change management consulting” and not actually anything transformational. Nothing wrong with that, just not as reliable or as effective.

So I became very frustrated that I could not find a single hedge fund playing this game called transform companies. I knew I was missing something. Every single business study on this kind of work showed results that any shareholder activist would be salivating over, this was clear alpha, and a low competition game with very high barriers to entry. (If the barriers to entry were low, I would not be writing about this or even talking about this).

Why Is Nobody Already Doing This?

I knew I was missing something but couldn’t figure out what. This was the best idea I ever had in my life for a business and also seemingly the lowest hanging fruit. I just couldn’t get why nobody had taken this on before.

And then it became quite clear.

I called 37 different hedge funds or investment managers that were engaged in some kind of activism. I was excited and figured they would all be competing for me to implement this idea at their fund. I had this vision that I would develop this business as a fund, make a ton of money, and make a ton of people (including myself) extremely successful in this world. These “so-called” rational people however became quite cynical. Not skeptical and open...