In 2018, several events indicated that corporate governance risk at the company was increasing. In November 2017, the company’s founder suggested that they should purchase an electrical vehicle bus company that he owned. Due to the size of this related-party transaction, this would have required a majority of the minority investors to vote for the deal. As there were limited synergies with the company’s core business, investor feedback and reaction was very negative, and they withdrew the transaction. In February 2018, the company’s CEO sold most of his shares and announced that he would resign in March, without any explanation. Finally, for its annual results posted in June 2018, the company did not hold an annual shareholder results presentation as it had consistently done in the past. The company did not even host an earnings call with analysts and shareholders. We interpreted these events to mean that management had shifted to having very little concern for minority shareholders’ interests. Thus, the risk in our investment had risen substantially.
Due to these signals and events showing deteriorating corporate governance, we started reducing our position in the first half of 2018 and sold out during the third quarter.