Among the leading investment funds in Europe is the London-based hedge fund called Children’s Investment Fund. The fund is associated with one of the biggest charities of UK, The Children’s Investment Fund Foundation (CIFF). What profits are earned by the fund, a part of it is given away to the foundation for charity causes. The charity is primarily focused on helping the poor children in developing economies. The fund was founded in 2003 by Chris Hohn, and the charity is managed by his wife, Jamie Cooper Hohn.
Working of the Children’s Investment Fund
The Children’s Investment Fund has a clear philosophy to accept capital only from investors who are agreeable to commit investments for long-term periods. The fund employs traditional methods to identify potential investments that it believes will fetch good returns. It tries to make an active engagement with the top management of the firms in which it acquires a stake. However, where the senior management and the board of directors are performing in the best interests of the shareholders, Children’s Investment Fund maintains a passive role and does not interfere in the management’s role.
The fund is open minded about making investments in promising companies in any parts of the world, even though its managing firm is regulated under the UK laws. Due to its insistence on investors’ commitments for long-term funds, the Children’s Investment Fund gets a better flexibility to trade and invest in new projects without any restraints of short-term returns or other ad hoc objectives.
Shareholder Activism of the Children’s Investment Fund
The fund operates in a most businesslike manner, but also with a conscience to safeguard the best interests of the stakeholders in the companies where it invests its funds. In its ceaseless endeavour to enhance shareholders’ value, the Children’s Investment Fund also draws flak at times from various quarters who believe that the fund’s activist approach furthers its own agenda in the name of ethical corporate governance and protecting shareholders’ interests.
Children’s Investment Fund furthered its image as an aggressive shareholder activist fund when it pushed for the sacking of the CEO of the German Stock Exchange, where the fund has been a key stakeholder. The CEO had to resign when he refused to give up his plans to acquire the London Stock Exchange. Similarly, in the year 2007, the fund pressed for a split up of the multinational bank ABN AMRO to enhance the value for the shareholders. The bank was finally forced to go for a split up and was sold to Royal Bank of Scotland (RBS), Fortis and Banco Santander.
A year earlier, in 2006, the Childrens Investment Fund that has a stake in both Mittal Steel Co. and Arcelor, gave its backing to Mittal Steel in its unsolicited takeover bid for Arcelor in its aim to protect shareholders’ interests. But later on when Mittal Steel made another bid to takeover Arcelor Brazil without a fair premium, the fund came out in defence of the minority shareholders of Arcelor Brazil. Eventually, Mittal Steel ended up paying a 55% higher price than its original bid to acquire the company.
Major Investments in Recent Years
The Children’s Investment Fund has a team of analysts that is constantly on the lookout for entrepreneurs and companies with great business ideas across Europe, Asia and the Americas.
Primarily, the Children’s Investment Fund is focused on a traditional approach of making investments in companies that have a strong potential to increase shareholder value but are not doing so due to faulty policies. Those are the kind of candidates that the fund targets for making investments, and turning around the companies with a close engagement with the top management and the board of such companies.
In 2006, began to create a massive one billion dollar position in CSX, which is the major East Coast railway freight company in the United States. Childrens Investment Fund had a core belief in the superior cost efficiency of railways over trucks, and felt that the market value of the stock was heavily discounted. The fund, along with its co-investor 3G Capital Partners, pushed forward a plan for CSX that would increase its daily train service time from 2.4 hours to 4.8 hours, improve the efficiency of labor and railway yard, and bring down the costs of maintenance and fuel consumption. Furthermore, the fund and 3G Capital Partners are raising a campaign to replace five board members of CSX with new people whom they believe to be fitter for the company. While the campaign ensues, the stock price of the company has already gone up by over 55%.
The Children’s Investment Fund holds strong financial capacity to support businesses that have a genuine long-term profit potential but are struggling due to lack of funds. At the same time, start-ups with very strong new technologies and strong projects also may succeed in drawing the attention of large funds such as this one and receive the much-needed initial investments from them.