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March 25, 2020  

Plunging Conditions Drag Down Hohn's TCI

Plummeting stock prices have sent TCI Fund Management’s returns deep into negative territory.

Sources said the London firm recently was running a year-to-date loss of more than 20% through its flagship vehicle, The Children’s Investment Fund. The situation worsened late last week, with industry participants pegging the entity’s slide at about 30%.

TCI’s losses illustrate a trouncing that value-oriented equity managers have experienced as the financial market craters in response to the coronavirus pandemic, with many suffering their worst losses since the 2008 market crash. The flagship fund from Ricky Sandler’s Eminence Capital, for example, was posting a month-to-date loss around 15% in mid-March, a source said.

The HFRX Equity Hedge Index was showing a monthly decline of 12.3% as of March 20, with a year-to-date drop of 16%.

As for TCI’s fund, the concentrated activist vehicle slumped 8.8% in February after gaining 3.8% in January. While the entity’s exact asset mix isn’t known, sources said its recent performance suggests a heavy exposure to stocks. “[TCI] sold off in line with what you would expect” for a firm with a long bias and a concentration in heavy-hit equity sectors including travel, infrastructure and technology, one industry participant said.

The recent losses are some of TCI’s steepest since former Perry Capital executive Chris Hohn launched the operation in 2003. Sources said some investors remain bullish on the portfolio, viewing the underlying companies as strong and likely to regain value. Others said limited partners likely will withdraw some of their capital, especially given lingering questions about how Hohn navigated the 2008 selloff.

The Children’s Investment Fund lost 43% in 2008, versus a 19% decline for the average hedge fund. The belief is that the poor showing reflected a bullish economic view held by Hohn. TCI co-founder Patrick Degorce, meanwhile, had been pushing to move more heavily into cash. He wound up leaving the firm at yearend 2008 in part because of the conflicts in their approaches.

TCI, which runs money exclusively for institutional investors, saw its assets dip to about $13 billion by yearend 2008 from $16 billion a year earlier. It was running some $30 billion overall early this year.

The vehicle’s 2020 performance has marked a stark and sudden reversal from what had been standout gains in recent years. In 2019, for example, it was up 41%.

The fund has delivered average annual returns exceeding 10%.

Hohn is known for taking long-term positions in its portfolio companies while agitating for change. The firm recently began placing more emphasis on pushing those businesses to reduce their greenhouse-gas emissions.