When Christopher Hohn, the founder of one of Britain’s largest and most successful hedge funds, chose to structure his fund to automatically donate a portion of its fees to charity — specifically his wife’s charity — people took notice.
“The marriage of business and philanthropy that is at the heart of the Children’s Investment Fund and the Children’s Investment Fund Foundation provides a great tool to effect serious change in the developing world,” former President Bill Clinton said when speaking to the fund’s investors in 2006.
Many marriages end, and Mr. Hohn’s is among them. The couple is now locked in divorce proceedings in a London court.
The fund and the foundation have also split up. According to regulatory filings in Britain, the Children’s Investment Fund, known as TCI, will no longer donate money to the foundation on a contractual basis, though it may do so on a discretionary basis.
The change, set in motion in 2012, but disclosed in filings this year, means that TCI is now just another big hedge fund that makes outsize gains when it has big returns (although with a far gentler name for a hedge fund than, say, Fortress or Cerberus, a reference to the three-headed dog that guards the gates of hell). The partners of TCI — about 15 according to its filings — shared 31.5 million pounds, or $53.4 million, for the 12 months to February 2013.
While the change in structure coincided with the Hohns’ separation, one person briefed on the fund’s operations said another reason was that the charity was now big enough to run without TCI’s contributions. Over the last five years, TCI donated $950 million to the foundation, including contractual donations and discretionary payments. Since TCI’s founding in 2004, it has donated $1.9 billion.
On Wednesday, Jamie Cooper-Hohn’s lawyers lost an attempt in court to submit evidence that Mr. Hohn’s stakes in the fund’s management companies might be as high as $800 million, rather than only about the $100 million that his lawyers contend, according to Bloomberg News. She says she is entitled to half the larger number; he says she is due a quarter of the smaller one.
What is not in dispute is that the foundation is one of Britain’s largest. It has $4.6 billion in assets, according to a foundation spokesman. Last year, it gave away $123.8 million to causes including nutrition, child survival, early learning and climate change and made grants of $106.4 million. Ms. Cooper-Hohn, the founder, was a major force in organizing the Nutrition for Growth Summit held in London last year, which secured commitments of as much as $4.15 billion to tackle malnutrition.
The Children’s Investment Fund stands out beyond its philanthropy. It was an activist fund in Europe long before activism became a popular strategy, and it has delivered the kinds of returns that put hedge funds on the map in the late 1980s (30 percent in 2012; 47 percent last year, both net of fees).
Mr. Hohn cuts a far different figure than many of the media-friendly activists in the United States who relish the limelight. That does not mean, however, that he shies away from battles. The fund is suing the Indian government, contending that it has exerted undue influence over the management of Coal India. TCI has also called for the European defense conglomerate EADS, now Airbus, to sell one of its most politically sensitive assets, a large stake in Dassault Aviation. And the fund took a big stake in Rupert Murdoch’s News Corporation before the company was split in two, and it has pressured the board of Japan Tobacco to buy back stock and increase dividends, both of which the company has done. In 2008, the fund waged a proxy battle at the American railroad operator CSX.
Mr. Hohn and Ms. Cooper-Hohn declined to comment for this article.
The son of a Jamaican car mechanic who emigrated to Britain in the 1960s, Mr. Hohn graduated from Southampton University in England. He later earned an M.B.A. from Harvard Business School. After seven years at Perry Capital, he founded TCI in 2004. Last weekend, Mr. Hohn was knighted for his contributions to philanthropy and international development.
According to a Harvard Business School case study written about one of Mr. Hohn’s activist campaigns, TCI would not be socially responsible but would invest in any sector it deemed undervalued. “We believe we can do greater good by making more money and giving it away,” the study quoted him as saying. It would take concentrated bets.
In a 2008 interview with The Telegraph newspaper, Ms. Cooper-Hohn said that she and Mr. Hohn had been attracted to one another by a “shared sense of something larger than ourselves.”
“This is a key principle of the foundation — the aim that Chris’s money will result in long-lasting and radical change,” she said.
The fund’s design did not insulate TCI from the ire of those who see hedge fund compensation as outrageously high and the charitable arrangement as a web of relationships aimed to minimize taxes rather than save the world. Mr. Hohn was once described as a “locust” for his campaign against the Deutsche Börse’s bid to buy the London Stock Exchange.
But the couple became Britain’s biggest philanthropists on the back of Mr. Hohn’s success. TCI donated £484 million, or $821 million, to the foundation in 2008 after a blowout 2007. It donated $19.3 million in the 12 months to February 2012 and $24.2 million in the same period in 2013, regulatory filings show, even after the relationship between the two — or four — ended.
TCI now manages $8.8 billion, and an additional $4 billion for the foundation (which it manages in a separate, less concentrated portfolio that returned 17.3 percent through August 2013).
As is the case with many hedge funds, TCI’s track record has been a bit of a roller coaster: It started small and grew fast, reaching about $17 billion (2004 returns ranged from 42 to 44 percent, depending on the class of share invested, and for 2005, 50 to 52 percent).
In 2008, the fund lost more than 40 percent and irritated many investors — including Yale University — by imposing retroactive fees. The next year, TCI separated the foundation’s assets from those it managed from other institutions, returned capital to investors and shrank to about $4 billion in assets under management, said the person familiar with the funds operations.
Since then, it has steadily increased assets under management, posting strong returns. Activist funds returned 1.69 percent in the first quarter, according to Preqin; TCI returned more than 3 percent, an investor said.
It continues to attract attention. In October, the fund raised eyebrows after becoming the largest private shareholder in the British government’s much-criticized privatization of the Royal Mail. Shares of the Royal Mail soared immediately after it went public, leading many to question why the initial public offering price had been set so low. TCI has since sold down some of its stake.
The criticism does not seem to bother Mr. Hohn.
At a EuroHedge conference last year, he was quoted as saying: “People say to me, ‘You’re too controversial, you’re too directional, you’re too concentrated, you take too much risk.’ I say to them, ‘That’s all true, but I make money.’ “