Meet The Hedge Fund Boss Who Previously Employed the UK Prime Minister
From 'venture philanthropy' to punchy activist calls, we look at TCI's founder, Sir Chris Hohn.
This week we look at Sir Chris Hohn, who founded and still runs The Children's Investment Fund Management (TCI). Since forming the hedge fund back in 2003, assets under management have swelled to $36.2bn (as of 2022).
The fund is fairly unique in the donations to charitable causes, with it being dubbed “venture philanthropy”. Yet Hohn is a smart investor, with his career deserving praise irrespective of the uses of the profits.
Who is he?
Sir Christopher Anthony Hohn, was born on October 23, 1966, in Addlestone, Surrey, England. Growing up in a middle-class family, Hohn displayed an aptitude for academics, earning a scholarship to study at the prestigious Westminster School. Later, he pursued his undergraduate education at the University of Southampton, where he studied accounting and economics, laying the groundwork for his future endeavours in finance.
Following his graduation, Hohn ventured into the world of finance, honing his skills at investment firms such as Apax Partners and Perry Capital. However, it was in 2003 when Hohn established The Children's Investment Fund Management (TCI), a hedge fund aimed at generating returns to support children's charities globally, that his career catapulted into prominence.
Due to the strong performance of the fund, Hohn quickly gained recognition as one of the most influential figures in finance. His philanthropic efforts and formidable investment acumen have earned him accolades and even a knighthood in 2014. At the point in time, his fund had donated $4.5bn to charitable causes.
As a side note, current UK Prime Minister Rishi Sunak was employed by TCI in the early 2000’s.
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Activist investment strategy
Hohn and TCI have been notable for their activist investing strategies, leveraging their positions in various companies to drive change and unlock shareholder value. Here are three examples of their activist investments:
ABN AMRO (2007): In 2007, TCI played a pivotal role in the acquisition of ABN AMRO, a Dutch bank, by a consortium led by Royal Bank of Scotland (RBS). TCI held a significant stake in ABN AMRO and actively pushed for the bank to consider strategic options to enhance shareholder value.
Hohn and TCI advocated for the breakup of ABN AMRO, arguing that it would maximize returns for shareholders. Ultimately, ABN AMRO was acquired by the RBS-led consortium in one of the largest banking takeovers in history. Although we can’t find an accurate profit figure that TCI netted, it was in the hundreds of millions.
Deutsche Börse (2011): TCI engaged in activist investing with Deutsche Börse, the German stock exchange operator, in 2011. TCI held a stake in the firm, with Hohn opposed to Deutsche Börse's proposed merger with NYSE Euronext, citing concerns about the deal's strategic rationale and potential regulatory hurdles.
TCI advocated for alternative strategies to enhance shareholder value, including exploring other merger options or returning capital to shareholders. The activism resulted in heightened scrutiny of the proposed merger and ultimately led to its collapse, as regulatory authorities raised antitrust concerns. Hohn won again.
Vivendi (2013): TCI took an activist stance with Vivendi, the French media conglomerate, in 2013. Hohn and TCI pressed for strategic changes at Vivendi, including the spin-off of non-core assets to focus on its core media and telecommunications businesses.
TCI argued that such actions would unlock shareholder value and improve Vivendi's performance. Despite initial resistance from Vivendi's management, TCI's activism gained traction, leading to significant changes in Vivendi's corporate structure. As a result, Vivendi divested several non-core assets, including its stake in Activision Blizzard, and refocused on its core businesses.
TCI don’t own the firm anymore, and we can’t find data to show when the stake was sold. Yet if it was sold pre drop in 2021, the gains could have been over 100%.
That letter to Google
Probably the most recent high profile ‘nudge’ that Hohn has given one of the companies that he owns came in late 2022 with Google. The follow up letter from early 2023 is shown below;
We can’t have been the only ones to raise an eyebrow when we first read the letter to a tech giant CEO. A 20% headcount reduction? Materially reducing compensation? Big calls.
Is Hohn happy with how the company is being run since then? It would appear so, given that the latest 13F filing shows that he still holds the stock in his portfolio.
Quotes to note down
"Capitalism is the engine of prosperity, but it is failing to work for society when we have large numbers of workers who can't earn a living."
Hohn highlights the dual nature of capitalism, acknowledging its role in driving economic growth while underscoring its shortcomings in addressing income inequality and social welfare.
"If a company doesn't embrace stewardship, it won't be able to attract talent."
Here he emphasizes the significance of corporate stewardship, which often can get overlooked. He suggests that companies committed to ethical practices, environmental sustainability, and social responsibility are more likely to appeal to top talent and foster a positive workplace culture conducive to long-term success.
"Ethics is about doing what's right when no one is looking."
Although Sir Chris wasn’t the first to be quoted as saying the above, it underscores the intrinsic importance of ethics in both personal and professional conduct. He emphasizes that ethical behaviour is not contingent upon external scrutiny but is a fundamental aspect of integrity and moral responsibility.
"I am a fierce critic of companies that fail to put investors' interests first."
Hohn expresses his stance as a vocal advocate for shareholder rights and accountability within corporations. He asserts that companies have a primary obligation to prioritize the interests of their investors, which include delivering long-term value, maintaining transparency, and upholding fiduciary duties. His success in combating underperforming companies can be seen from the track record of TCI.