Chris Hohn’s TCI Fund Management enjoyed another strong year in 2021.
The London-based activist posted a 23.3 percent gain last year, its sixth double-digit increase in the past seven years. TCI’s fund currently manages about $44 billion, while the firm manages a total of $55 billion.
The hedge fund runs a concentrated, long-only global portfolio of stocks, preferably of companies that dominate their industries or have near monopolies. According to its most recent 13F filing, TCI held 13 U.S.-listed stocks at the end of the third quarter, while European infrastructure stocks not traded in the U.S. accounted for 20 percent of the fund’s book.
Five of the U.S.-listed stocks accounted for nearly 70 percent of the $41.6 billion U.S. stock portfolio, according to the filing. And last year, several of them easily outperformed the S&P 500, which itself was up more than 28 percent, including dividends reinvested.
For example, TCI’s number-one U.S. long, Alphabet — Google’s parent — surged 65 percent, while number-three long Microsoft rose 52 percent. Credit rating giant Moody’s, TCI’s seventh-largest U.S. long, gained 35 percent.
Meanwhile, shares of Canadian National Railway, the target of an ongoing activist campaign and a top-five holding, rose 12 percent last year. TCI owns 5.2 percent of Canadian National, a freight railway that serves Canada and parts of the U.S.
Last May, TCI fired off a letter to CN chairman Robert Pace opposing the company’s planned merger with Kansas City Southern, asserting, in part, that the company was taking a big risk by committing roughly $2 billion related to potential breakup fees as it awaited regulatory approval.
The hedge fund firm has also asserted that the company has been plagued by “weak leadership,” which has “resulted in deteriorating financial and operating performance.” TCI had called on the company to replace chief executive officer Jean-Jacques Ruest with Jim Vena — who had served as chief operating officer from February 2013 to July 2016 — and the firm also nominated four directors to the board.
In September, Kansas City Southern terminated the merger agreement with CN and agreed to merge with Canadian Pacific. Also that month, Canadian National announced a plan to cut spending and improve profitability and pledged to repurchase another roughly $4 billion in stock.
Canadian National has accused TCI of making “numerous misleading claims and inconsistencies” in disclosures and asserted that the hedge fund has a conflict of interest because it also owns a large stake in Canadian Pacific Railway. “CN’s Board and management team share a singular focus to execute on opportunities that are in the best interest of CN stakeholders,” the company stated in a press release in October.
Alas, in October, CN agreed with TCI to hold a special shareholder meeting on March 22. Two weeks later, CN announced that Ruest would retire as president and chief executive officer and as a member of the board of directors, effective January 2022. The resignation came a day after TCI published a 102-page case for changing top management and the board.
TCI applauded the resignation and reiterated its proposal to name Vena the new CEO. In late December, however, Vena withdrew his name from consideration. TCI subsequently urged the company to delay naming a new CEO until the special meeting.
TCI has also made a major push to engage companies on climate change. The firm launched the “Say on Climate” initiative, which urges companies to disclose their emissions, present a strategy to reduce those emissions, and seek non-binding shareholder approval on an annual basis, according to a firm presentation.
The initiative has been adopted by more than two dozen companies, including Canadian Pacific, according to a TCI presentation on CN in October.
