#124: Don Chambers - Update On SVVC Activism

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 BDC Info Don's Proposal to SVVC (see page 16) Election Results     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 Return4/28/2001-10/24/2019 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