It was almost a year ago that UK activist investor The Children’s Investment fund was making huge waves in Japan, not least with its full-frontal assault on Electric Power Development Co, the Japanese electric power wholesaler and nuclear energy company known locally as J-Power.
It wasn’t as if TCI didn’t have enough on its plate already: In the US, the $9.5bn UK hedge fund was fighting for radical changes at national railroad CSX and had taken a stake of almost 1 per cent in the CME Group and a smaller stake in the New York Mercantile Exchange Group in the midst of the two groups struggling to persuade shareholders to back their proposed $9bn merger. The previous year, TCI had been agitating at ABN Amro, as well as attempting to block the merger of the NYSE and Euronext.
TCI’s wrangles with J-Powe, though, were to prove equally – if not more – challenging. As FT Alphaville noted back then:
TCI has essentially been trying to double its stake in J-Power from 9.9 per cent to 20 per cent, as well as promote various internal changes including bringing in external board members. These moves, TCI says, are all in the name of better corporate governance in Japan. Actually, we tend to think – like all of TCI’s forays into the corporate wrestling ring – they’re more about money.
TCI on Wednesday said it would launch a proxy battle against J-Power, demanding higher dividends and a limit on cross-shareholdings. The move comes a week after Japan’s government ordered the fund to drop its plan to double its holding, citing national security concerns about possible stable power supplies and the like.
The order marked the first foreign investment Tokyo has rejected on the grounds of national security — and was unusual in a Japanese sector (electric power) which has been comparatively open.How times change.
Never one to avoid a fight if it’s possible to come out swinging, TCI has abruptly changed tack in its rather combative approach to Japan investments. According to Bloomberg on Tuesday, the $9.5bn UK hedge fund has been cutting short positions on Japanese stocks, including a chunk of Toshiba, by almost $1bn in less than two months.
The reductions came as the Nikkei 225 Stock Average surged more than 20 per cent in the past three months, prompting a frenzy of short-covering among money managers.
For TCI, it was a question, perhaps, of right shorts, wrong timing. Most of the stocks it reduced its positions in were carrying out – or had conducted – dilutive capital raisings. The only problem was what you might call the irrationally exuberant Tokyo stock market.
Japan is just a small part of TCI’s problems right now. As Bloomberg reports:
TCI’s fund fell 43 percent in 2008, as global hedge funds were battered by client withdrawals and the worst market losses since the 1930s. John Ho, the Asia head of TCI, will leave the hedge fund after disagreement with the firm’s founder on the investment strategy in the region, a person familiar with the matter said last month.
Ho’s departure follows that of co-founders Snehal Amin and Patrick Degorce, who left the firm this year. Christopher Cooper-Hohn remains the only founding partner at the fund. At least 11 executives have resigned from TCI since the fund started in 2003, according to U.K. filings.
43 per cent down and bleeding partners, while cutting its (probably substantial) losses on Japanese stock investments. Doesn’t sound like the old TCI we know. But undoubtedly Chris Hohn still has plenty of fight left in him – even if he is the last man standing.
Related links:
TCI cuts $1bn of Japan short stock positions – Bloomberg
For TCI it’s child’s play – or is it? - FT Alphaville