TCI Down 25%, Calls Recession ‘Inevitable’

Oct 15 2008 | 12:34pm ET

The Children’s Investment Fund is used to battling intransigent company management, not negative returns. But the prominent activist hedge fund shop was among the ranks of the battered last month, one of the worst in the history of the hedge fund industry.

The London-based firm told investors it lost almost 15% in September, Financial News reports. TCI, which is not known for its patience when it comes to making changes at its portfolio companies, is asking its clients for just that, saying that a recession is “now inevitable” and investors “need to have patience to ride out this storm.”

The fund lost 15.6% during the third quarter, leaving it down an eye-popping 25.8% for the year. TCI investors are more used to annualized returns of about 26%.

“In hindsight, the only thing we could have done to avoid the falls in the fund was to go to cash or aggressively hedge with futures,” the firm told investors. “Recent aggressive liquidation of stocks by funds has caused many stocks to deviate substantially from intrinsic value in any scenario short of a widespread collapse in the world economy.”

Still, all was not gloom and doom. In a “moderate recession,” TCI said its holdings could return as much as 20% annually over the next five years.

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