Christopher Hohn is one of the few hedge fund managers who has something to celebrate this year.
Hohn’s hedge fund, the Children’s Investment Fund (TCI), gained between 3.19 percent and 3.38 percent in the first quarter, depending on the share class, after dropping about 0.8 percent in March. The fund is operated by Hohn’s firm, the Children’s Investment Fund Management.
This was nearly three times better than the 1.26 percent gain posted by his preferred benchmark, the MSCI World index, over the same period. It is also significantly better than how many other hedge funds have fared so far this year, especially the long-short, macro and CTA sets. Even so, at this pace Hohn will be hard-pressed to match last year’s return, when his fund gained between 45.7 percent and 48.8 percent in its various share classes.
TCI’s first-quarter report, obtained by Alpha, reveals that as of March 31, the fund’s long exposure stood at 98.2 percent, and its short exposure was 3.1 percent, for a net exposure of 95.1 percent. It was also 7.6 percent long credit, bringing its total net exposure to 102.7 percent. This compares with 112.5 percent at the end of February and 113.5 percent at the end of January.
Hohn is said to be harvesting some of his gains and in the process of building new positions. It is not clear from the report which specific investments drove first-quarter returns. If Hohn’s bets are broken down by industry, his biggest is now on utilities, accounting for 21 percent of his gross exposure, followed by infrastructure and autos, each accounting for 16 percent of exposure.
Geographically, though, the biggest bet of Hohn’s portfolio by far is on Europe, accounting for 50 percent of gross exposure. This is down slightly from 53 percent at the end of 2013. In the first quarter Hohn increased his exposure to Asia (excluding Australia) by nearly 50 percent, to 28 percent of total exposure, compared with 19 percent at the end of 2013. He also nearly doubled his position in Latin America to 7 percent from 4 percent of exposure. On the other hand, he lowered his exposure to North America to 14 percent from 22 percent.
TCI’s biggest gains during the first quarter came from Europe, accounting for 2.4 percent of gross performance, according to the report. This was followed by Latin America and Asia, excluding Australia. North American exposure, on the other hand, cut into gross performance by 0.6 percent.
Last year the biggest contribution to TCI’s profits came from its activist campaign urging EADS (European Aeronautic Defence and Space Co.), the European aircraft maker best known for its Airbus division, to sell a key military airplane unit. The investment generated a 90 percent return in 2013. Earlier this year EADS changed its name to Airbus Group, adopting its most recognizable and successful business, Airbus airplanes. It also restructured, shrinking the number of units to three from four.
TCI also enjoyed a 57 percent gain from its investment in News Corp last year, which split into two companies. TCI remained invested in 21st Century Fox, which includes its cable television properties. Last year Hohn also gained 60 percent from his firm’s position in Safran, the French aerospace, defense and security company, and 44 percent from its activist campaign against Japan Tobacco.
Hohn set up his firm, the Children’s Investment Fund Management, in 2004 after spending seven years at Richard Perry’s New York–based firm, Perry Capital. Hohn started in Perry’s New York office and eventually moved to London, where he ran Perry’s European fund.
From the outset, TCI donated a portion of its fees and profits to the Children’s Investment Fund Foundation, or CIFF, which is managed by Hohn’s now ex-wife, Jamie Cooper-Hohn. However, it was reported a little more than a year ago that Hohn stopped making contributions to the charity because he felt the foundation was large enough.
