Before we invest in something, we seek to understand it first. Thats the basic need. When we look at some trusts, something just don't click with our subconcious mind but guess its due to our inexperience regarding such entities, don't know, not sure.Beefy Barber wants to unlock some cash value from his scissors and shavers lying in his run-down barber shop. He thought of a smart idea, why not package these scissors and shavers into a erm.."Package". Securitise it with say 100 shares. He keeps 40 shares and sell the remaining 60 shares equally to the Sexy VJC Girl and the Scheming SGDividends Team. The maintenance and usage of the scissors and shavers will be managed by Beefy Barber's employee. The revenue from the scissors and shavers will be (after deducting the management fees for Beefy Barber's employee) distributed to Beefy Barber ( 40%), Sexy VJC Girl ( 30%) and SGDividends Team ( 30%) according to their percentage of shares.
So in summary:
Beefy Barber gets 40% of net revenue + management fees ( through the employee)
Sexy VJC girl gets 30% of net revenue
SGDividends gets 30% of net revenue
Should we invest in it?Since Barber is a majority shareholder of the "Package" and also the 100%manager of the "Package", could Barber increase his management fees so as to leave little for the owners of the Trust? Hmm...So our Sexy VJC Girl thought of a smart idea. Lets create a trust deed so we can bind the amount of management fees to be received by Beefy Barber. (little kids these days..) Ok, hmm since the trust deed requires the majority shareholders to vote for it to have binding powers so we should be safe since Sexy and SGDividends hold 60%. So we decided on an appropriate management fee....say 4.5% of the revenue derived from the "Package" . Beefy Barber however wants 10% but since we (SGDividend and VJC Girl) own 60%, we win. We can only hope that Beefy Barber don't get pissed with us and still put in the effort to manage his scissors and shavers well.
So how about in the real market? Generally, a trust ( or REIT) is made up of many many investors who come and go and may not be united. Will they be able to muster up collective action even if collectively they hold the majority shares?
The point is, is there a conflict of interest between Barber and the rest of the other shareholders like Sexy VJC Girl and SGDividends?Who is to check the Beefy Barber who has the "most" say in the Trust and who is also the manager of the trust?
In a company structure, the board of directors checks the management to ensure shareholders rights are protected. In the trust structure, it seems there is no such structure in place. This is how we feel about Trusts.
We hope our worries are unfounded.
Let us meditate on the island of Sakhalin to find the answer.
Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team
Not totally related but -
ReplyDeleteSometimes during my late afternoon kopi at some leafy kopitiam near my work place, I seriously think about passive index fund investing rather than hitting the SGX casino after reading sgdividends*RULEZ* or some cheery analyst newsletter. In Singapore-context, I can only find a few SGD-denominated options (eg.STI ETF, Infinity index funds which feeds from Vanguard index funds).
Given the current era's volatility, the "blindfolded monkey" have a good chance of being luckier than the conscious choices of mere humans in a peer-consultative process. (i.e reading each other's call, GS downgrades MS, MS downgrades CS, CS downgrades ML, ML downgrades BAC...opps)
Best story I read for index-fund investing.
http://www.sanfranmag.com/story/best-investment-advice-youll-never-get
And hey, our dear tankinlian seems to agree too!
From that article
"And it makes a certain kind of sense. If a naive investor calls a broker with $100,000 to invest, would the broker be likely to recommend the Vanguard 500 Index with its .19 percent annual fee, of which he receives nothing and collects but a small portion of his firm’s approximately $100 transaction fee? Or might he suggest the client buy Putnam’s Small Cap Growth Fund B Shares, which carry a 2.3 percent annual fee, 1 percent ($1,000) of which goes to him? And will he tell his client about it?" or maybe sometime even more fancy like "minidividends"
The few times when I was doing my banking and decided to talk-cock-singsong with the FA (eg.she looks like my crush), I always felt I am diverted to the narrow few funds that is the flavor of the week/month. (what is that behind you, ohh..."this one, we dont sell anymore/the returns are not good compared to the one I just told you about") - hmmm, maybe you can try fitting your teeth on 60-year-old auntie behind me...
I think the fairest and most efficient model is the open-source way of working with things, both in my profession and in bigger issues in life. (my hidden agenda is in the source code, please examine it)
And I shudder to think about experts(Trend Micro) asking you to "run to get that patch" for the latest and bestest root-vulnerability for Internet Explorer. When alternative and better options (Firefox,Chrome) exists. The experts need you to get the patches so that he can market his product to act as apologist for IE vulnerabilities/poor design.
The world seems more messed-up than you think :)
The world is messed up, thats the absolute truth. But thats why we keep learning to sharpen our awareness.
ReplyDeletePeople who just take things at face value really do deserve to be punished.... =).