E-mails Offer Glimpse Inside TCI

Jul 21 2008 | 7:36am ET

The Children’s Investment Fund’s battle with railroad CSX Corp. is offering a rare window into the secretive activist hedge fund and the mind of its founder, Christopher Hohn.

As part of its ongoing legal fight with CSX, the London-based hedge fund, which last month won four seats on CSX’s board, has produced several internal e-mails that have appeared in court filings. They show a manager who, despite his run of double-digit returns, is constantly questioning his fund’s strategy and taking employees to task for failures.

“We have not appreciated the banking crisis meant banks were just bad to invest in because we kept too much exposure,” Hohn wrote in an e-mail on March 8. A day earlier, he complained that the fund wasn’t hedging enough.

“I feel bad that we have not hedged properly,” Hohn wrote to analyst Patrick Degorce. “We should have hired a strategist to help us. Maybe we still should.”

The e-mails, however, also show that Hohn’s subordinates are not afraid to challenge him. Degorce reminded Hohn that the fund would have to hedge during both bear and bull markets, hurting returns in good times.

“You have to make up your mind,” he wrote to his boss.

Degorce told The Wall Street Journal that the e-mails are outdated and are just a part of the ongoing discussions he and Hohn have frequently. He added that he and Hohn have no disagreements about the portfolio or its management.

The correspondence also shows that Hohn questioned the size of the fund’s stake in railroad stocks amid the increasingly nasty battle with CSX.

“Your estimates from the start of the year and even last week look wrong and I am surprised that I am having to point this out to you,” he wrote in February to Snehal Amin, the TCI founding partner who has led the fight with CSX.

Amin fired back, “You have to give us some credit for getting the big picture right here.”

CSX is appealing a June decision by U.S. District Judge Lewis Kaplan, who ruled that he could not stop TCI and 3G from voting their combined 8.7% stake in CSX in spite of their securities law violations. The railroad’s CEO, Michael Ward, said the results of last week’s board election might not be finalized until the court case has run its course.

Hearings on the appeal are scheduled for Aug. 25.

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