Institutional Investor's Alpha Magazine - September 2008 - (Page 33)

described Hohn as “a harsh and brilliant critic.” When Hohn launched TCI, he sought to apply a private equity manager’s fundamental mind-set to researching publicly traded companies and seeking out deeply undervalued stocks. Hohn noticed that many companies that were laggards also had entrenched, well-compensated boards. When his efforts to meet with their directors met with resistance, he reacted with a dissident’s wrath. In 2007 he famously put ABN Amro in play when he sent its board a scathing letter demanding that the Dutch banking giant be broken up or sold. But Hohn’s faith in corporate democracy has been shaken by CSX. “I think Chris has had second thoughts about activism, because the ﬁ ght with CSX has become this exhausting, all-consuming thing,” says Richard Elden, founder and former chairman of Chicago-based fund-of-hedge-funds ﬁ rm Grosvenor Capital Management and currently a principal in Chicago-based Lakeview Investment Manager. Adds Elden, who has known Hohn and invested with him for more than a decade: “The question is, How many of those kinds of investments do you really want to have in your portfolio in any given year? The commitment they require is enormous.” H ohn’s us-against-them attitude stems in no small part from his working-class upbringing in classconscious England. His father was a car mechanic who emigrated to the U.K. from Jamaica in 1960; his mother worked as a legal secretary. The couple eventually settled in the leafy village of Addlestone, Surrey, where Hohn was born in 1966. He graduated from Southampton University, a red-brick school far from Oxford and Cambridge, with a BS in accounting and business economics in 1988 (earning ﬁ rst-class honors) and took a job with accounting giant Coopers & Lybrand. Hohn left Coopers to pursue an MBA at Harvard Business School and graduated in 1993. Finishing in the top 5 percent of his class, he was named a Baker Scholar — a distinction that he shares with adversary Michael Ward, chairman, president and CEO of CSX Corp. (class of 1976). After Harvard, Hohn did a short stint at a consulting ﬁrm, then took a job as an analyst at London-based private equity ﬁrm Apax Partners in 1994. He resigned and moved to the U.S. after marrying American-born Jamie Cooper in October 1995 and then took at job at Perry Capital in 1996. Hohn began as an analyst researching midcap European companies and just a year later started running a subportfolio for Perry’s ﬂagship fund. In 1998 he moved his family back to London to open Perry’s ﬁrst office in the U.K. and launched his own portfolio, the Perry Capital European Fund, in the spring of 2000. Hohn — who has always been attracted to companies with substantial free cash ﬂow — never fully adopted Perry’s event-driven, merger arbitrage style of investing. He also chafed at some of the restrictions that Perry placed on his managers, such as his insistence on running portfolios with relatively low net market exposure. According to Elden, Hohn — who was delivering annualized returns in excess of 20 percent a year with the Perry European fund — thought he could do better if he had the freedom to pursue his style of deep-value fundamental research and maintain higher net market exposure. With a three-year track record and investors lining up in the hope that his then-closed $1 billion fund would reopen, Hohn broke away in early 2003 to start his own business. Perry was taken aback by the defection and shut down the Perry European fund when Hohn left. In planning TCI’s portfolio structure, Hohn decided that he didn’t want to be geographically restricted and told prospective investors he was going to be more global. He also wanted TCI’s portfolio to be more concentrated than his fund at Perry, taking core stakes in just a dozen or so companies. And he decided to do less hedging than he had at Perry and to short only those positions that offered him a means of capturing alpha on a stand-alone basis. He knew his fund would be volatile, so he required prospective investors to sign up for one of two share classes that entailed either a three- or ﬁve-year lockup. “Chris wanted a longer lockup that would force his prospective limited partners to self-select,” says Steve Berger, a co-founder of Boston-based fund of hedge As head of TCI’s investment strategy for the Americas, Snehal Amin has been at the center of the battle with CSX. SEPTEMBER 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 33

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - September 2008

Institutional Investor's Alpha Magazine - September 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Culling the Herd The Good Guys: Ending the Cycle Interview: Press Credentials Cover Story: Rethinking Chris Hohn Strategies: At the Edge of the Earth Profile: Alpha Femals Strategies: Tails, You Lose Research Center: The Top Equity Trading Firms Alpha Bytes: The Light Is On Unhedged: Commentary: Not-So-Dire Diagnosis

Institutional Investor's Alpha Magazine - September 2008

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