Sir Chris Hohn’s TCI returns market-beating 14%
Sir Chris Hohn has described the $10bn The Children’s Investment Fund he founded as “the antithesis of the classic hedge fund” after it returned a market-beating 14 per cent in a year when many rivals have floundered.
The London-based investor’s performance has placed TCI as one of the best performing equity hedge funds in the world in 2015, driven by a large bet on Spain’s airport privatisation, as well as an investment in the European aerospace company Airbus, and the US cable operator Time Warner Cable.
The 14 per cent gain for TCI takes the fund’s compounded annual returns since launching in 2004 to 18 per cent per year after fees, compared with a 6.9 per cent total annual return for the US S&P 500 index over that period.
“We are the antithesis of the classic hedge fund,” Sir Chris told the Financial Times. “We are the opposite. They are hedged, we are long. We take risk. They are short term whereas we are long term. They are passive, and we are engaged. They charge high fees, we charge less.”
His comments come in a year when some of the world’s largest hedge funds have struggled to generate returns. Some of the industry’s best known managers have suffered some of the worst annual performances of their careers. Others have shut down altogether.
Sir Chris said TCI’s investment returns, which were 29.5 per cent in 2012, 47.2 per cent in 2013, and 8.1 per cent last year, showed that highly focused, long term stock selection based on fundamental research could consistently outperform the wider market.
“People said we were finished in 2008, but we have outperformed the market since then,” he said. “We are showing that concentrated fundamental stock picking works, and that the consistent alpha generation of our strategy has been large and persistent over a very long period.”
Sir Chris added: “This is TCI’s 12th year in managing money and we have compounded at 18 per cent net of fees over that time, versus 6 per cent for the MCSI world equities index.”
An increase in the amount of money invested by conservative institutions such as pension funds into hedge funds has coincided with a drop in performance across the industry, leading to some becoming disgruntled with paying high fees for their services.
TCI operates a different fee structure to most hedge funds by using return hurdles that mean investors only pay performance fees once the fund has made a set return for the year.
While some funds still charge a fixed management fee on assets of 2 per cent, TCI charges a fee that decreases depending on how long an investor locks up their money for. This starts at 1.5 per cent a year for a one year lock up, and drops to 1 per cent for a three year lock up.
Since founding TCI in 2004 Sir Chris has used part of the fund’s fees to endow a charitable trust called the Children’s Investment Fund Foundation, which has assets worth $4bn, making it one of the largest in the UK. He was knighted for services to charity last year.