Sir Chris Hohn Transcript from "In Good Company"

Hohn & Tangen 1v1

Please find below a slightly edited transcript of a recent discussion between Chris Hohn from TCI Fund Management and Nicolai Tangen from Norges Bank Investment Management. This interview was posted on youtube on May 13th 2025. I have made minor edits to improve readability. Any inaccuracies or errors are my responsibility.

SPEAKERS

Chris Hohn, Nicolai Tangen

Nicolai Tangen: Hi everyone. I'm Nicola Tangen, and today we are joined by one of the best investors of all time, actually. So Chris Hohn, not only is this fund, TCI one of the best and most successful funds that Europe has ever seen, but also the charity is one now one of the largest in the world. So Chris, you continue to have a immense positive impact on the world. Thanks for coming. Good luck. Let's start with the investment world. What makes a good investment?

Chris Hohn: I think this is something a lot of people get wrong. They let's they think it's about growth, often, okay? Or something new. Neither of them, those things in themselves, to us, matter by themselves, the most important thing and without which it's in for the let's say the types of investing that we do is high barriers to entry. The moats that Warren Buffett has talked about now can before we dig into that. Can a distressed asset of a, you know, a piece of real estate that selling at half price because of a liquidation also be a good investment. Yes. So Can there be a role for cheap average assets? Yep, let's call them low quality assets, which are trading at big discounts to replacement cost. Yes, that's the, that's the type of investing that can work. Yeah, I've done in my time, yeah, cheap average businesses or cheap bad businesses. But I don't feel that I can have any confidence in that type of investing, because the earnings power of those averages businesses is unpredictable.

Nicolai Tangen: What? So, what are good Moats?

Chris Hohn: The most important answer is ones that are sustainable. Okay, a lot of people, and ideally, you would have multiple moats, multiple pieces of defense. And there are many Moats. is basically something that means that the business is difficult to replace, difficult to compete with, yes and replace two, two substitution risk and competition risk, those long term become different, very difficult, because, why is it so important? Competition kills profits. Yep, that's as simple as that. Substitution eliminates your business. So we look at there are many, many moats, one which most people don't look at. Most investors don't really look at actually, interestingly, is irreplaceable physical assets. Okay, we're in a world where people just look at earnings. They don't look at asset value, or physical assets and so we like quite a bit of infrastructure. Airports, for example, one of our investments which has been the airport group in Spain, where they got a private ISNA. Yes, I, you know, and you just can never, they'll never build a second airport at Madrid or any other places. These are, you know, natural monopolies and so. But that also applies to toll roads and railroads and telecom towers. So there are many forms of infrastructure, transmission towers that are hard to compete with, because then natural monopolies, where, where, of course, some of these things can be overbuilt, like cable. So there's a form of infrastructure, but it's, usually you have to look at the details of case by case, very unusual to try to and usually go get the planning to build a second airport. So no economic case to it.

Nicolai Tangen: I can't remember how long they've struggled to get an extra runway at Heathrow

Chris Hohn: So planning exactly, planning and then roads is no economic case to build a second road or you don't have the land. So for different literally no. So infrastructure is physical. Assets is one a second is IP. But intellectual property, that's right, and which is so advanced, okay, that it's very difficult to replicate. Well, that's all.

Nicolai Tangen: What kind of intellectual property?

Chris Hohn: one space we like is. Is aircraft engines. And there it is a very complicated product, because the materials complexity the engines run at such high temperatures, metals melt, and so many different things have to come together. Yeah, 1000s and 1000s of complex parts. So that's one where, that's a business, where there are only two players in narrow body engines and two in wide body, and there'd be no new entrants for more than 50 years. The last new entrant was GE and so that tells you something. Yeah, there's a big industry, but it's so complex, very hard to enter. Another barrier to entry is installed base, okay, which applies to the aircraft engine business. Once those engines are there, they for various reasons. You get the spare parts business on it, and another of our barriers to entry is scale. Although that's not a guarantee of competitive moat network effects is another important barrier to entry. You can see this in assets like Visa, Meta, Yep. Two examples of network effects and brands are another barrier to entry. But I'm not saying every brand is powerful, but you know, you think about a McDonald's. It has a value. There are some brands which are powerful and sustainable, but not all. And I'll mention one more moat, which is customer switching costs. Take mission critical software once it's installed, companies are very reluctant to mess with it and switch because of the complexity.

Nicolai Tangen How important are recurring revenue streams for you? When you look at businesses?

Chris Hohn: it is important, but the predictability of when they recur is not important okay. Let me give you an example. So what's most important for us is something slightly different, which is essential, product or service. We don't like things which are discretionary. Okay, so one space we've invested in for a long time is rating agencies

Nicolai Tangen: these are the people who basically give kind of character to different type. Yeah. They say, is it good or bad?

Chris Hohn: The people who invest in bonds, they say, is it investment grade? Non-investment grade? Give for research. And if you like, bless it. And there you can actually defer an issue of pays for the rating, but they don't have to refinance their bonds, which is a big part of it. In any given year, they can delay and defer, but eventually the debt has to be refinanced and rated. And so there's an essential need is the bigger point. But usually, our companies have recurring and predictable revenue streams of essential products, yeah,

Nicolai Tangen: do they have to grow?

Chris Hohn: depending on valuation, not necessarily and or that's not necessarily at a fast rate, okay? And you and growth can cut from two forms, volume and price, so you have to break it down. Now, why isn't growth as important as people? Investors usually assume it to be because you can have profit less growth. The airline industry, over 100 years, has had a lot of growth. Airline travel has grown at 5% a year. Yep, continues to grow consistently. But airlines as a business, cumulatively and collectively have made almost, you know, minimal profits despite growth, because the very low barriers to entry and so. So I would say growth without barriers to entry is is not a combination that you want.

Nicolai Tangen: Some of these businesses are quite capital intensive, like, it's not cheap to build an airport, yeah, does that matter for you?

Chris Hohn: Well, you have to look at, like everything in detail. And some airports are all airports have a regulation on landing charges. You. Some the non-landing charges are unregulated, the shops, the advertising, the VIP lounges, the parking Yep. And the so-called jewel till regulation. One till is regulated; one till is unregulated. And those are very low capital intensity. Yep, it's in effect yep and high returns on capital, they grow because there's more and more demand for travel so on. Capital intensity by itself. It's part of the equation, okay, but it still, it tells you how valuable growth is, okay, but what Trumps, if you don't mind that expression, what trumps the all of this is

Nicolai Tangen: still a valid expression, yes,

Chris Hohn what trumps all of this is the the Barriers of Entry.

Nicolai Tangen: What about regulation? You’ve been big in things like Red Electrica

Chris Hohn: Yeah, I'll go into that, but I want to go back to the point about growth can come from two forms, price and volume. Okay? And most companies don't have pricing power. They can only price if they're lucky at inflation, and that's why people don't focus on it. They don't even look at where growth comes from. They just assume it's volume plus inflation. But there is a special group of super companies that can price above inflation, and that's, as Buffett taught, the test of whether you have the moat, okay, and this real pricing power above inflation can be very valuable, because if you can price 1% above inflation and you have a 20% profit margin, your profits will go your profits will go 5% faster than revenue, and people don't go into it or analyze it, because there's so few companies that that have it, but, this is something we have a you know, A lot of investments have

Nicolai Tangen: because incremental pricing is pretty much all profits.

Chris Hohn: That's right, and it's very potent if you have lower margins. So this is why you asked about growth. And is it how important if you ask about volume growth, but I have low volume growth, but I have a lot of pricing growth, that's actually more important because of the leveraged effect of there's no cost associated

Nicolai Tangen: Regulation. you have been invested in a lot of regulated businesses. Yeah, that's right, in airports, but you've been in Red Electrica, which is like electricity, transmission company. You've done quite a few of these things.

Chris Hohn: Yes, I have. And actually it's a general risk, because if you have barriers too low. Competition or substitution eliminates your business, and your investment barrier is too high. Regulators may come knocking on your door, yep. Every case is different, yep. And the ideal case is you that there is competition but weak competition and apparent competition.

Nicolai Tangen: Okay, so tell me what is apparent competition?

Chris Hohn: Yeah, well, it's really weak competition and rational competition. Okay, so the take some examples. Pratt and Whitney competes with GE and Safran. It has a 25% share of new orders. It can as a product, but it's not nearly as good. It's got 35% of its engines grounded multiple technical problems. It's lost a lot of trust, but it's there competing and for new engines, yeah, but price isn't the most important thing in this industry, reliability is and so you and so, as it struggles, it has to raise prices because it's got very, you know, lots of difficulties in sometimes where there is competition, that competition chooses not to compete. You know, generally speaking, not a specific industry decides to be rational, yeah, and compete on, you know, non-price based approach, okay? And then the detail matters. So you might have looked at Heathrow Airport and see, oh, that. Airport is fully regulated. Airports can't be good. But if you look into the detail of AENA, it's a different animal. It has a piece that's regulated and a much bigger piece, 70% of value, maybe more, which is unregulated, yeah. And so maybe the unregulated business, the regulated business, will give you a bond like return 7% but the unregulated give you a much higher return. Do you see?

Nicolai Tangen: another group of businesses you've been very big in has been the stock exchanges, both Deutsche Boersa, London Stock Exchange, and so on in the past? Yes, yes. Why are they? Why were they so good?

Chris Hohn: In the case of Deutsche Boerse, starting with that they had a derivative business called EUREX, which was a natural monopoly. It was a network effect. This was the barrier to entry, that liquidity of a marketplace for trading bond futures, European bond futures, the network effect of getting best prices in the most liquid market meant it became what is termed a winner takes all or natural monopoly, and once you have that liquidity, very hard to move people away price. You can never compete on best price and run the Stock Exchange has that for LCH, ClearNet business, a clearing business, and so where an exchange can CME has it on US Futures. Establish this natural monopoly by being the first mover. Okay, the winner takes all. Then these exchanges can be very good, but of course, they've changed now. Stock exchanges are in many different businesses, sells data, and half their earnings are from data, and that's nonproprietary data reselling nonproprietary data. So, it has a vulnerability on that piece. They're no longer just what they used to be. And then there was a lot of growth without capital, yep, as people came and traded more, as capital markets grew, you grew without capital, which was, was very valuable,

Nicolai Tangen: what are the type of companies you would never invest in type of industry?

Chris Hohn: Yeah, that's a good question. We have a long list of companies we don't invest in. We're very focused, and we call them risky and bad industries. And I have invested in some of these in the past, but I've learned banks sorry for that as a bank, you know, Central Banks are good, yes, Central Bank, we good, but we because we don't like, we don't like banks,

Nicolai Tangen: and why not?

Chris Hohn: Why not? the low quality of earnings, because they're very leveraged, and much more than people think, because people look at, oh, equity to risk weighted assets, but equity to total assets. Many banks have been run it 100 times and so two they're opaque. You can't look into the you can't. Yeah, you can't. I remember, pre financial crisis, I had a look at Credit Suisse, and I sat down with the then CEO, Brady Dugan and and said, Put his balance sheet in front of him from the annual accounts. And said, you have a multi trillion-dollar balance sheet. Can we walk through the line items, because I don't understand it. He said, I don't either very honest guy. I really liked him very, yeah, very honest. And

Nicolai Tangen: okay, so banks, you don't do. What else don’t you do?

Chris Hohn: And the other reason for banks is very important. You know that sooner or later, you may find someone without a lot of intelligence comes to run them, and then it can be toxic. Yeah, people going for growth, Anglo Irish bank, if you remember that one, and they just can destroy the shareholders, yeah, by getting bonuses. You know, Bear Stearns, you know, and non-alignment of interests with leverage and opacity. the others, oh, many. The auto industry is obviously a commodity, retail, you know, insurance, commodities, commodity manufacturing, tobacco, the truth is, yeah, anything in most things in manufacturing, okay, so industries, most industries, yeah, so.

Nicolai Tangen Of course, it doesn't leave, it doesn't leave a big universe, correct?

Chris Hohn: We say maybe there's 200 companies that we consider to be high quality and investable. And I mean, I'll list you a couple more traditional asset managers, bad businesses, yeah, speaking as one, fossil fuel, utilities, bad businesses, airlines, bad businesses, wireless, telecom, bad businesses. We think media is bad advertising agencies. You know, it's a very long list. Why? Because it's competitive and with existing players and new technologies. And the one important thing that I've learned in my time in investing is investors underestimate the forces of competition and disruption, because they just look today, maybe there's a new company which has a first mover advantage, but then competition comes in, yeah, substitution

Nicolai Tangen: where does it leave you on the big US tech companies?

Chris Hohn: yeah, so there's a lot of power of incumbency. This is another important point. So let's take a company, Microsoft, okay, which we've invested in, and one of the barriers to entry is bundling, okay, or, or maybe because it, it creates a customer switching cost. What? What do I mean by this? So the office franchise, which we're all familiar with, has many products in it, your applications, word processing, Excel, your email, security, different things, and they sell it as a bundle. They don't disaggregate it. And when a new product or a potential competitor enters, they can add it to the bundle. So Zoom came out with video conferencing, and they could have potentially, you know, added all the things Microsoft does to that. So Microsoft had to respond, and they launched Teams, and they were able to distribute it through the bundle, yeah, free to everybody. And even though Zoom, some people believe was a better product, or is it better product? Microsoft won that battle because they had the installed base, the incumbency, which we talked about, and high switching costs for because once people are using their office software, they don't want to switch. And so people started using teams, okay, something given to you free? Why? Because it was good enough. Yeah, it didn't have to be the best if it's free

Nicolai Tangen: What about the other tech companies?

Chris Hohn: We have a position in alphabet and which is maybe our most risky investment, where they're clearly the company, and it's one of our smallest investments as a result, it's and where we have some level of protection, because there are businesses like YouTube and their cloud business, which represent half the market cap today, and cash and other things. So it isn't all search, but search is critical and so can they out innovate competition? Yeah, there's a risk of search fragmenting, you know, as competitors come in and try to but it's a question mark. Well, we don't think so. We think they have a lot of advantages of their data to have, due to offer higher quality search results and but competition is increasing

Nicolai Tangen: talking of which, how do you think AI will change the investment landscape here.

Chris Hohn: It’s going to increase disruption in ways we can't even predict. But there are things like call centers will all go bankrupt, and another segment is Indian outsourcing companies who do coding and things like that? Demand for those services could collapse because AI can do coding, you know, with half the people. Yeah, yep. So. So there are, but AI will increase the productivity and lower the cost base of all, all companies. And so if you have a company with these barriers to entry, it's going to be worth more, I think, for generally competitive businesses, if you don't lead, you could become uncompetitive and be disrupted.

Nicolai Tangen: So now we have identified one of these companies. Let's say I don't know. AENA I you know, or Rolls Royce or Microsoft. How do you value these companies? What is your valuation tool like?

Chris Hohn: We don't even look at that until we get comfortable that the barriers are so strong it will be around. Now, okay, fine, fine. Be around. Yeah, we think it'll be around. We think there will continue to be an airport in Madrid.

We'll do reference checks on relevant people, okay, so and see if we're missing something. So we, when we were looking at investing in aircraft engines with we spoke to the CEO of a former CEO of one of the competitive companies, and he confirmed their thesis, and actually said the margins should be much, much higher, okay, and over time they will go there, So that that's one of the pieces of diligence, we will assess management where I think it's important, but not critical, if you have the right assets through, ideally through meeting them, the talk to competitors, get their view, and look at competitive companies, look at the track record of the company, and usually you don't understand everything, and usually the things you find out are bad things. And I think we'll discuss it with our team. And we want to hear competing views. Yeah, we have some members of team who are just inherently bearish, and they're good for testing the bear case. We always want to hear how could technology disrupt, yeah, and or just what competition and

Nicolai Tangen: are you a bearish guy?

Chris Hohn: Not particularly, no

Nicolai Tangen: What kind of valuation metrics do you look at? P/cash flows? Do you do DCFS? You have, like, 50 page spreadsheets all of those, right?

Chris Hohn: All of those. But not 50 pages. honestly, one of the things we learned is there's a really important point, is that we can have an advantage through long termism, okay, which is the average stock is held by an institutional investor by under a year, or the stock market in the US,

Nicolai Tangen: how long do you hold it?

Chris Hohn: Average holding period of our current portfolio is eight years. Eight years, yeah, that's, yeah, eight years. I'm not saying that's the limit. It's just the we've, on average, some we've held for 13 years, some new investments, like GE Aerospace, two years for the average, weighted average holding period is eight years. Yeah, so, but it could be 10. It could be 20.

Nicolai Tangen: I love long term, right? But how do you install that type of thinking into your organization? I mean, we really business school. You want to hey, I mean, you know, went to Harvard, like you did or whatever. It's just like, hey, let's do some stuff. Come on, let's do some stuff. Yeah, and it's just like, Hey, okay, let's buy something and hold it for eight years, right? You come home to your partner every day, they do nothing.

Chris Hohn: If you know, if you are in the private equity world, that's normal, yep, a private equity fund would hold an investment for their 10 year life funds, normally, yeah, or longer, 12 years, yeah, as you know, and so, we as an overused expression for some or misused we take a private equity approach, I.E that we have to hold the company forever, because you the stock market may be at very bad prices when you want to sell, yeah, if you need to sell. And so, I really think you need to have that approach and so the way we really like our long term valuations, DCF, the most important things.

Nicolai Tangen: And here's the DCF, you take the cash flow and you discount it after today.

Chris Hohn: Yeah, but here's the thing is the longer you can look out if you've got a great company, the more valuable value there is take a company we own, Moody's. Moody's. So it's been around 100 years. What do you think the average I can ask you a question. Make it fun. What do you think the average revenue growth over those 100 years has been?

Nicolai Tangen: I'm going to look like a total fool, but, 6-7%

Chris Hohn: 10%, wow, after, you know the very it's a very unusual number over a very long time period. And so investors have always underestimated its value, including myself, yeah, and I bought the stock during the financial crisis at 10 times earnings, and even bought shares Warren Buffett was selling, and reduced his stake from 25% to, I think he's got 15%.

Nicolai Tangen: the are you kind of, then, are you kind of secretly pleased having bought something cheap from Warren Buffett?

Chris Hohn: But then I sold it. I doubled, I doubled my money, and went from 10 times earnings to 20, and I sold it at $100 bought it at 50, sold it under. I thought I was clever, and then, but the earnings kept compounding, so I bought it back at $150 so now it's recently $500 now $400 so it's because, actually the intrinsic value compounding matters more than the stock price. If you have a great company, it will grow intrinsic value. Here's the thing about the multiples, they matter less than the growth when you look at it over a longer period, but most investors are unwilling or unable to invest on a long term time horizon, because either they don't know what they're doing, which interestingly, goes back to what were they think is risky, which goes back to what Warren Buffett was when he was asked what the definition of risk was. You know what? He said, not knowing what you're doing.

Nicolai Tangen: So really good nugget here is that if you buy something which is really good, it doesn't quite matter what you pay for it, because it will grow

Chris Hohn: secondary over a long while, I say the, let's just say it like this, the multiple to a point, yeah. Whether you buy it at, if it's growing, it's all math. Yep, you've got to look at the growth rate, the terminal multiple, the all the multiple things. But if it's increasing intrinsic value at a good rate, you will undervalue it if you look at it over a short horizon, yep, it can be saying it like that. And if you're, if you're willing to hold it for a long term and extract that intrinsic value growth, it'll be worth more to you than other people.

Nicolai Tangen: I've heard you say that there are more good companies in the public market than in the private market. Yes. Why do you say that?

Chris Hohn: Because the companies that that are sold by to private equity are the ones that aren't as good.

Nicolai Tangen: are you sure? How do you? what do you base that on?

Chris Hohn: lets dig into it. I know it upsets people who are in Private Equity.

Nicolai Tangen: I'm pretty pragmatic about this, but why do you? Where do get that from?

Chris Hohn: I happen to think that large companies are more likely to beat small companies in an industry, they have more money to compete and in R&D, yep, and scale. We talked earlier about scale being key and incumbency being key, and switching costs. So, yeah, we we think it's a small company that invents something new. We talked about Zoom. It can be crushed by a large company reasonably easily. They can copy. And large companies are usually, you know, too big for private equity. Private Equity can't buy Visa. No, they it's too big for them, yep. So that that size excludes private equity from large companies. And if a public company is selling something to private equity, usually they're not selling their best businesses. Yeah, and I'd say private equity, like all asset management is prone to the principal agency problem, where they are incentivized to gather assets. Let's just say, say it like this, the very best businesses in the public markets, I believe, are better than. The top 100 public companies are better than the top 100 companies in private equity,

Nicolai Tangen: okay, yep, yep. When do you sell a company?

Chris Hohn: when it's a view of intrinsic value is not as good as other things, not just value, but conviction, so philosophy, it two components to it, if you like intrinsic value, yeah, so the price still has to be at or below intrinsic value. But there's a second point which isn't really focused on by many investors, which is conviction. So it's easy to reduce faith.

Nicolai Tangen: You lose faith in them?

Chris Hohn: No, I'm saying you need to have conviction when you invest in something at all times. Yeah. And what does that mean? You could call it confidence. What does that word mean? Because there's a saying, talk is cheap. You can say this, and you can be wrong. Okay, and so one of my first investments, when I worked in New York for a hedge fund before starting TCI was in an Italian media company, and Bain Capital bought control. It was like a billion euro valuation, and it went to a 50-billion-euro valuation, and then went to zero. It was a Yellow Pages company.

Nicolai Tangen: SEAT (Società Elenco Abbonati al Telefono).

Chris Hohn: yeah, you remember it and when I first invested, the internet didn't exist, and people thought yellow pages were a monopoly, and they were and so the point is, you can be wrong, and certain industries your risk of being wrong are higher. Technology is one of those areas, absolutely. But if I own an airport, yep, that is or a toll road, let's take a toll roads that are unregulated, which there are, there are some that we own. I'm less likely to be wrong than if I own a retailer, yeah, my, my chances of being wrong are less because I have physical asset backing substitution risk. So the thesis is much more obvious, yeah, because so the and so this, this concept of conviction is very important. One investor, yeah, said to me, I have to be able to sleep at night. It has to be sufficiently obvious, which, but you always sounds contradictory to saying that you can be wrong, because what kills you as an investor is permanent loss of capital.

Nicolai Tangen: Absolutely,I got a bit of a problem with the concept of intrinsic value, as if there were some kind of objective truth

Chris Hohn: Yeah, you're right. You're right. It's, you know, we can't tell the forecast the future, so to any high degree of accuracy, you can just say, which is why you can and the longer you look out, the harder it is. And so we look at simpler tests. Sometimes, will the business be around? Yep, will we still fly airplanes in 30 years? And you know, will we want airline travel? Will there be demand for it? And so, once you know, so I agree with you. So I think that valuation is just approximate. We, you know, we can just say, in truth, with can, with confidence, we have a good or great business, okay? And as I'm saying, only a small subset of businesses can be predicted, yeah, which are the most powerful ones, but exactly how they grow? And you know, unexpected events. You're right. There's no certainty.

Nicolai Tangen: Let's move on to from companies to investors and in terms of what makes a good investor, why are you a good investor?

Chris Hohn: Well, it's your words. It's important to have humility. But there was someone I knew who took me aside once, and he said, Chris, you and I, he did reasonably well. He said, we weren't the best investors. We just took the most risk. So I just wish isn't. Not true, actually? Yeah, it was. He was. It was an interesting comment that makes you sometimes when people say a joke you or something, you wonder, is it true? But I was always willing to look at the company fundamentals and not them try to guess the stock market. Okay? And focus on macro or trading, yeah. So I was always fundamental. Most investors are not fundamental. They trade actively. They look at data points. They say, what's the catalyst? They don't really know what the company does. So I think the fundamental approach has been key. Long termism is key, Okay, another thing we've done is concentration. We've owned a few things. Yeah, we may have 10% type holdings, 10 stocks, you know, 15 stocks. We don't own 100 things. And I think another key point is intuition. We work with intuition, which is something that is, how strange. How do

Nicolai Tangen: How do you use intuition?

Chris Hohn: it's been defined as thinking without thinking, which is the Buddhist would call a Koan, something that just doesn't make sense.

Nicolai Tangen: We will come back to your Buddhist thoughts later on

Chris Hohn: but it's, it's a lot of people don't understand what intuition is. It's sort of,

Nicolai Tangen: I happen to have written my master's dissertation on this exact topic.

Chris Hohn So you're one who does, then it's sort of the opposite of intellect. And so pattern recognition, in a way, you've seen it, yeah, that's, there's a word for it, knowing, okay, it's, it's all of the opposite of intellect. So of course, we'll do analysis, but, but then I it's a higher level of intelligence than just intellect.

Nicolai Tangen: But do you, what do you have intuition about? Do you have the intuition about the people, the situation? What is it?

Chris Hohjn: All of it, okay, all of it is someone trustworthy or not trustworthy, and the patterns, another thing. And so, you know, we were, we don't do we rarely short, but we were short Wirecard, yeah, I know we're coming back to that, yeah. And, but

Nicolai Tangen: but is your intuition now better than it was when you were younger.

Chris Hohn: Yeah, it was not in intuition so much before the last five to 10 years that you've been a change, but I think I always operated with at an intuitive level, and it's not just stock picking, but I decided to start my own fund. You know, 21 years ago, I just had this intuition that I was in the wrong place and not doing what I was meant to do. And it wasn't about money or anything, but it's when, you know, when I met my wife, Kylie, you know, you just Yes, and there's a point where you just know, yeah. It isn't an intellectual thing.

Nicolai Tangen: You know, there, Chris is called, this is called love.

Chris Hohn: This is something else. Well, yeah, love is not of the mind, but love should be intuitive. Yeah, it's an example.

Nicolai Tangen: Yeah, do you? Do you believe in so if I, if I'm your colleague, so I work now for you, I'm a junior analyst. I came to I come to you, and I say, Hey, Chris, I got this intuition. I think this looks really good. Will you believe me?

Chris Hohn: I'll the because the thing is that people have to, we don't work like here's the differences. I've been a stock picker, so a lot of portfolio managers aren't portfolio managers. They're managers of managers. And they say, people like that say to me, there's only two truths, which is not the story that I hear, but the P and L and the stop loss, because they can't analyze the company themselves. So No, we never take anything from anybody at face value, and we work in a team. That's something we didn't mention earlier. But the point is, just a story is just a story. Yeah? What you have to focus on, what matters, okay? Because there was a spiritual teacher, actually, who said something that applies to investing. He said very few things matter, and most things that matter - don't matter at all. Okay, so you could and investing, it's actually similar, yeah, you can. You need to get out of the noise and just focus on the handful of things that matter.

Nicolai Tangen: Is it talent, or can it be trained to become a good investor?

Chris Hohn: I think it. And be trained? Yeah, there's a judgment element of it. I think it can be trained for sure

Nicolai Tangen: No, we have. We both have taken inspiration from some of the same people, right? One of them is John Armitage who I worked with.

Chris Hohn: yes, yeah, I love John. I love John. I consider him a friend. Yeah, I was just starting out. He really, he's a great investor, and he took me under his wing a little bit, and couldn't do anything. And we had the same couple of same stocks. The Energy Group was one, and I didn't have the experience to know and say, you, you would probably say, you know that knowing and intuition comes with experience too, but yeah, and so yeah, I'm a fan of John's,

Nicolai Tangen: yeah, because most of the things I know about investments I learned from him and his partner, Bill Bollinger. So we have some of the we have some of the same teachers here, moving on a bit. So you are, or you were, in a, perhaps more considered an activist investor. Yes, so in your, in your view, what is an activist investor doing?

Chris Hohn: It's a spectrum, and from full blown hardcore, removing boards and CEOs and demanding the sale of a company to call it soft activism, softer activism of trying to have relationship and dialog with the company at a professional level and where you understand their mindset and their thinking of the business so, so and and engage, okay? And that could mean many things. It doesn't, you know, I'd say today our relationships are very, generally, very constructive with companies so but it wasn't always that way. Yeah, it wasn't really.

Nicolai Tangen: I learned you gone from having been an aggressive tiger to becoming a bit more of a You know, big lion, yeah.

Chris Hohn: Though no one's thought like that when we started the fund, when we named it the The Children's investment fund, we thought, how are we going to compete with Tiger and Viking and more aggressive named funds? But yeah, it is true. I've learned that actually activism, hardcore activism, is not a great thing.

Nicolai Tangen: Why not?

Chris Hohn: Yeah, it's very difficult to succeed because the vast preponderance of today's investor base are passive, who don't actually to get them to vote for something is very difficult and and all the power, you know, the and so active management is dying. And so when I started, there was very little indexation, and so there was a more engaged, active shareholder base. And now indexation is limited the power of shareholders.

Nicolai Tangen: But I mean, you were one of the most feared people in Europe.

Chris Hohn: But I owned bad businesses long ago, like ABN Amro putting up for sale through putting on the AGM to sell the company. And we made a lot of money. We made a billion dollars forcing the sale of it. But in truth, the company was worthless, but was bought for 100 billion from three companies who all went bankrupt, Royal Bank of Scotland, Fortis and Donvenneter. So they didn't know what they were doing. We didn't know what we were doing. And it was all, you know, a madness. It was a, but it made money. But for those who sold, but in truth, the fundamentals were, would trump everything. So a lot of activists end up being activists in bad businesses,

Nicolai Tangen: but have you stopped being an activist because you are more attracted to good companies, because you can't control the business always

Chris Hohn: the business always wins. Yeah. Okay, so it's pointless being an activist in a B business. And that said we still engage in it, in hardcore activism. We have an investment where we went on the board and, you know, pushed out, you know, Chairman and some directors and the and the company is doing much better now and but that's an. Exception, and I'd say that was a result of a disastrous case in the company where they were on the board and they couldn't appoint a CEO. The board was divided, and it was a real mess.

Nicolai Tangen: What kind of personal toll does it take on you to be in these fights?

Chris Hohn: Let me give you an example. A few years ago we, I don't know, it was six years or so. We own shares in Safran, where we still own them. We've held them for 13 years, and it's a great company, aircraft engines and joint venture with GE aerospace, and they announced they were buying a company called Zodiac. And we felt French aerospace now, you thought that the price was ridiculous, 10 billion euros, and they wanted to pay in shares, and we thought that we believe the shares were half price, so they were paying four or five times the intrinsic value. And we undertook a very aggressive campaign and threatened the litigation and demanded a vote. And in the end, the company target was adding multiple profit warnings, and it became clear that we were right. And Safran went to Zodiac and said, we have to cut the price in half and pay in cash because TCI are forcing us okay and so. And that's what happened. The stocks doubled and but we were sued by the seller for 100 million euros, both me and my general counsel separately, he said, Chris, it's not really sleeping much at night. You can afford it. I can't. And so, yeah, I went into a Paris court and you, it's not for the faint hearted to do this.

Nicolai Tangen: And do you enjoy a good argument?

Chris Hohn: No, I don't really enjoy fighting people any more. I never really did. It was, it was a, it was a something we began with Deutsche Boersa, and now, really, I'd say what people call activism is a, is really an exception to us. So it's like, why did we get involved in that Zodiac? We were already a shareholder, and something bad came out of the blue. It's like, you walk home and someone attacks you, yeah, to try to take your wallet, and you fight back. And I say, Do you enjoy a fight Nikolai?,

Nicolai Tangen: no, but I'm not so sure. I would fight back

Chris Hohn: Should you choose to? Yeah, I would ask you that question. Is you? You would say, No, I don't enjoy fighting. It's just I had no choice. I was fighting for my life. So I put it like this, we act as owners. We always act as owners. What does that mean? We were interested. We're engaged. We think we have a right to appoint directors. We're a legal right to it. And we'll Yeah, and so we take one thing we have learned is governance does matter,

Nicolai Tangen: Which brings us to kind of the opposite wild card. It's a bad company which you short it and shorting, just for those people who don't know it's you borrow shares, you sell it. The goal is that the share price should go down and you buy them back cheaper, and hand them back, right, and make a profit. So what's the score? I mean, in a few words, Wirecard. yeah, it's a very long accomplishment.

Chris Hohn Yeah, high level, we learned that shorting isn't a great business, because you're gonna be right, but not be able to hold it or fund the losses. Okay, so, wire card, which is, if you are short and the share price goes up, you basically unlimited downside and you have to fund the losses.

This is what people don't realize you're going to be eventually, right? So the first guy to short wire card 20 years ago was a guy from Bronte Capital, and the stock went up 20-30 times and went to zero. But he was when that happened, he was interviewed by the media, and they said, Congratulations, you were right. But he said, No, I had to cover 19 years ago. I couldn't afford to fund those losses, and so it's you have to understand investor psychology. Yeah, it's tough, very tough. And I had a dinner once with Warren Buffett, and he said he and Charlie looked at shorting, you know, they studied it, and they just said it was too hard because of that point of understanding investor psychology and the asymmetric risk and reward. And so it's an exceptional thing. But we we looked at Wirecard and and all the accounting games, and then the Financial Times came out with all these articles, yeah, and I called the journalist. A good guy. And I said, you're writing all this stuff. And he said, It's all true. I said, no one will listen to you. He said, everything's true. We stand by every word. And you just you could literally read it in the paper

Nicolai Tangen: the whole German establishment went in and supported It

Chris Hohn: Yeah that’s right. That's right. In fact, the chairman was a former CFO of Deutsche Boersa and in but there was a bit of pattern recognition where I remember at Harvard Business School, an accounting course I took, and there were red flags, yeah, when you do this small auditor, yeah. No cash flow, yeah, and things like all their Asian businesses, the office was empty, yeah, absolutely so. But I think to be a good investor, you need a certain independence of thought totally and probably to be a good journalist as well. And that's why, the funny thing is that the fraud was there in plain sight. And I think I learned to be an independent investor and the and so we went to see the CEO. Actually, I sent two of my team to meet him, and they came back incredulous at this, like pathetic demonstrations of technology and that they were shown. And interestingly, there was a potential catalyst, which was the report about their accounting. And in the end, they just said, it's garbage and then the stock went up a lot. And so actually, I tried to take become an activist in this position, I filed a formal criminal complaint for fraud in the at the Munich prosecutor's office, because they said, if I didn't wasn't public about it, would be viewed as market manipulation, so we're transparent about it. And that created chaos, but it forced some action. Yeah, you know when it forced, eventually an investigation and and so, because I didn't want to be like Bronte Capital, where it just ran and ran, and so at some point it really became obvious, and it became a confidence game. I think that people trust authority too much. Okay, that sounds a strange thing, but they trusted the German establishment, that you had a board with the great and the good and they weren't willing to believe the journalists.

Nicolai Tangen: I'm really we had, we had a we had a very good team at NBIM, you know, which was on the same who were on the same side of that. So, yeah, so really good talking about trusting authority and so on. And moving on to corporate culture at TCI. What is a corporate culture like in TCI? How many people are you? You know, in the investment team?

Chris Hohn: It's, you know, seven, eight people. We have a large back office. But how do you work together? We want so small, very small, and it's collegiate. Yeah, we've known each other a long time, and there's something that we've built, which is an intangible trust.

Nicolai Tangen: Why don't you have 100 fund managers?

Chris Hohn: Good question. Firstly, my best people, you know, they would never stay. They just, they don't want to. It would be too impersonal. There's a human aspect to work. Yeah, people don't come to work. You know, the best people for money. They come to because they enjoy the environment, and so it's really important how we treat people, how everyone treats each other, and I'll never hire someone without the blessing of my senior team, and because we could destroy the culture. And so I mean

Nicolai Tangen: Ice hockey teams are five, and football teams are 11. Is there something magic with seven?

Chris Hohn: No, but it's small enough. Yeah, above 10, it would be too, too big.

Nicolai Tangen: What do you look for when you hire so now I'm applying for jobs.

Chris Hohn: Meet everybody. Meet everybody.

Nicolai Tangen: Applying for a job at TCI, you meet everybody, I share the philosophy – what kind of questions you ask me?

Chris Hoh: Yeah what makes a good business. We asked for a case study, right or two. And. Becomes immediately obvious whether you know what you're doing, yeah, whether you share the philosophy. But also, it's not enough just to be a good investor. You have to want to work in a team, not everybody wants that, and you have to be able to get on with people in a way where you have to be open minded to being wrong. You can't be too dogmatic because so the personality does matter a lot.

Nicolai Tangen: Now you have a big share of the profit of the firm goes to the charitable foundation.

Chris Hohn: Yes well actually, I give it to charities. A lot of flags would be I do have directly often I give it to the foundation or CO invest with them. So, yeah, one way or another, it goes to charity.

Nicolai Tangen: Do you think it's important for your colleagues that you guys fund all this?

Chris Hohn: Well, charitable, they make a lot of money too.

Nicolai Tangen: do you think it's irritating that you give away all the money

Chris Hohn: they also earn, you know, good money, and it's probably a positive thing. I don't know definitively, and you'd have to ask them. I can't say definitively, but I, yeah, I give away everything I own. I don't really care about money for because, other than its value in helping people, when

Nicolai Tangen: When did you learn about philanthropy? Who taught you?

Chris Hohn: when I was in York working for a hedge fund one point, after about three or four years, it made, I don't know, two or $3 million and they had done well, and they said you're going to get a ten million bonus. And I just, this is in intuition, said, I don't want it. I want to just give it to charity. And I created a US foundation and gave it to it, and I didn't really understand it. What was driving me for 50 years? I would meet with Bill Gates, did a lot of charitable work with him over the years, and he would ask me, I couldn't answer the question, and eventually I did understand it, and better late than never, as a soul urge that there's essence who we really are, what we really are isn't the personality or the physical body, but, you know, soul or consciousness and that, some would call it Life. Yeah, that's something that gives us life, and that and will yeah, gave you, you know, in the same way you, Nicola, had a desire, a will, a will to do something more with your life. Yeah, then just make money and that. And in the fundamental nature of that's the soul is, is service, desire to help, to help, ultimately, humanity and

Nicolai Tangen: where did that come from?

Chris Hohn: It's innate within everyone that. But you think the Yeah, yeah, for sure, everyone resonate with everyone.

Nicolai Tangen: Why? Why don't more people do it because they're they identify with their personality and less with consider that like a unit, a user interface of the soul and the personalities, basic urges, desire, possessions, glamor, like power and money and other things like that, and, and sooner or later, people realize that that doesn't really give you know, some would say happiness, but actually, there's more important things in the world, in life than happiness, purpose and meaning,

Nicolai Tangen: but not but you say that sooner or later people, but I mean, people don't.

Chris Hohn: I'm not saying in one life, they may need here many lives, and that may be a strange thing for you to hear, to realize, yeah, I don't believe this is the only time we were we here, and I. Eventually we'll learn that they the what we are and can be as a result of some crisis in your life. Yeah, and death, disease or, in my case, the third D divorce and the and it's then that they look inward and ask, well, what is their life about? What is there a purpose? Is there a meaning? And for me, I could never find any purpose or meaning in my life except service and that is clearly, you know, something you could say it comes from within, yep, and, and, so that's my origins, of my philanthropy.

Nicolai Tangen: Do you think, I mean, you came from a working-class family, right? And your father was an immigrant. Do you how do you think that shaped you?

Chris Hohn: It made me an independent thinker. You always grew up as an outsider and, and you felt different, and it gave me a work ethic, work ethic, a desire to achieve something, yeah, and so I think that that was an important piece of my history.

Nicolai Tangen: Tell me about the foundation. What are the main priorities of the foundation now? So it is now one of the largest foundations in the world, right?

Chris Hohn: We have about six and a half billion dollars and in the foundation, and I also do philanthropy outside of that. And so between us, we're giving away over $500 million a year two main areas, climate change and children's health in Africa and India on the health side, we focus on foundational issues.

Contraception is one, you know, we can't get development or lifting people out of poverty if the women are having which far more children than they want. You know, Africa, fertility is nearly seven, and in many cases it's not affordable. They don't have access and agency. Women don't have access or agency to contraception, and so for $10 cost, for avoided a pregnancy. You can help a poor woman have one less pregnancy if she wants Yeah, and that's a remarkably low return on investment. High return on investment.

Yeah, there's almost nothing Another area is severe acute malnutrition, where I funded the creation of a company and I buy product for $40 a case you can of therapeutic food. Think of it as a fortified power bar, or it's you can save a child's life. And there's 100 million children with severe or acute malnutrition. Nearly half of all child deaths under under five neglected tropical diseases like trachoma. I find trachoma surgeries where just it's not for $50 you can do a fund, a surgery which stops someone going blind irreversibly. Yeah, and there's, you know, millions of people with this so it with so little money, yeah, $10 $40 $50 you can save a life, yeah, or stop something going blind. It's remarkably you know. You know what, what you know when you go to go out for dinner, you might pay $40 for a bottle of wine. You wouldn't think, Oh, I could save someone's life with this. But that's the reality. And so the HIV aids were very involved in as well

Nicolai Tangen: So on the climate side, what are the main areas there?

Chris Hohn: We’ve been trying to create infrastructure for the climate movement and regulation advocacy, because nothing's going to be fixed if there isn't regulation. We fund that's across the board, and also technical assistance to governments who want to change but don't know how. We're very active in Asia, where, if you don't operate in India and China, that's where, and you know, Vietnam and all these countries, that's where all the emissions are growing. Tax is another thing, because if we're not advantaging through tax, new technologies and we're subsidizing fossil fuels, which is what happens, we'll never change. And methane is another one. We're founder of the methane hub and methane satellites and just many things, litigation, environmental litigation, we found that so in a sense, there's activism there.

Nicolai Tangen: And, so given all this, how do you read the backlash against ESG in financial markets?

Chris Hohn: Well, I never really got involved in the s and the G, I just the E and so here, I think it's a very dark thing that's going on where people are saying, some people are saying, in effect, burn down the Planet, as long as we can make money today, and we don't care about future generations. We don't care about poor people in poor countries dying off. We only care about our country, yep, and making money as much money as we can today, to hell with the consequences. And it's really back to what I was talking about, this distinction between soul and personality, that if it's a consciousness problem, and actually, we'll never solve any of these problems, whether it's climate or poverty or war if there isn't a change in the level of consciousness.

Nicolai Tangen: So given that, and in order to finish off on a slightly more uplifting note, what is your what is your advice to young people on a kind of spiritual

Chris Hohn: Yeah, go on a spiritual path, go on a study. And I would say the spiritual world is real. Soul is when I first mentioned this to my son, I think it was 20. He said, Dad, the soul is a myth. He doesn't think that. Now,

Nicolai Tangen: is it not?

Chris Hohn: He doesn't think that now it's definitely not. And there are many paths to connect to it, and you can connect consciously to it and whether you go the long way, the short way, the easy way, the hard way. Through suffering, you eventually come to learn that it the spiritual world is not just real, but it's the whole thing. and so the and that's the only source of real purpose and meaning and joy which the world needs. Yep, and, and I think that if you crack that, then everything else is easy.

Nicolai Tangen: Very good. Chris Hohn, we've talked a lot about purpose, meaning and joy and what really matters in life. A big thank you.

Chris Hohn: Thank You

Nicolai Tangen: Thank you.