Monday, September 22, 2008

Christopher Hohn Rethinks Activism

Christopher Hohn is beside himself. It’s a dreary rain-swept morning in early September, and Hohn, looking more like a graduate student, with his rimless glasses and rumpled shirt, than the most feared shareholder activist in Europe, strides briskly across a conference room in his hedge fund’s stark, glass-partitioned, modern headquarters in Mayfair, London, and drops down into a black leather chair. The intensely private, 41-year-old founder of the Children’s Investment Fund Management (UK) has just made a rare public announcement and still wears the pained expression of the reluctantly exposed: TCI is joining with New York–based Atticus Capital to once again challenge the management of German stock exchange operator Deutsche Börse Group.

“The company’s valuation has collapsed this year, and shareholders are suffering,” declares Hohn. ”We’re frustrated with Deutsche Börse.”

These are frustrating times, indeed, for Hohn, the golden boy of activist investing, who rose to fame by halting Deutsche Börse’s 2005 bid for the London Stock Exchange and who last year single-handedly sparked the sale of ABN Amro Bank — the biggest banking transaction in history. In five years his assets under management have soared 30-fold, to more than $15 billion.

But 2008 has been another story entirely. Hohn is struggling seemingly everywhere — with markets, investment targets, uneasy investors and, increasingly, with himself. His high-profile effort to challenge corporate culture in Japan by trying to take a commanding stake in one of its largest energy wholesalers has been thwarted by the Japanese government. And in late May he had to endure a public grilling for more than an hour in open court in New York City in his yearlong battle with CSX Corp., the U.S. railroad group that operates an extensive network of freight lines and port connections on the East Coast.

Above all, after a heady run of eye-catching returns, Hohn’s flagship, the Children’s Investment Master Fund, is losing money. And Deutsche Börse is a very big reason why. With the global credit crisis hammering financial stocks, the German exchange’s shares have plunged by more than half since January, dragging down the returns of TCI’s flagship fund, which lost 12 percent through June 30 — a painful experience for a manager whose highly concentrated, long-biased portfolio had delivered net annualized returns of 42 percent in its first four years through December 2007.

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