Sir Chris Hohn: The Full Interview

[00:00:00] Simon: When one of the world's most successful hedge fund managers is also the architect and benefactor of the world's largest children's charity, you might be tempted to think that that's enough for most mortals, creating wealth and helping children thrive and survive through an immense charitable endeavour. But when that same person trains his sights on corporations failing to properly address their climate change transition plans, some good advice to CEOs and their boards might be to look at, or they may wish they'd paid attention earlier. So I've been in this industry since 85 and until today I've never had the chance to talk to one of the world's greatest investors, donors and determined activists for comprehensive corporate change in addressing climate issues and attendant behaviours. So it's very exciting and it's a great honour. So welcome Sir Chris Hohn to the Money Maze podcast. [00:00:50] Chris Hohn: Thank you. It's my pleasure, Simon. [00:00:53] Simon: Great. Well, let's just dive in. I'm intrigued. How did your upbringing prepare you for such a successful career in finance? [00:01:03] Chris Hohn: Well, mine is a somewhat unlikely story. I was the son of a car mechanic, immigrants from Jamaica, grew up in a small town. And I went to undergraduate in the UK where I did accounting and business economics and I, as luck would have it, I was taught by a visiting professor from Harvard Business School who taught entrepreneurship and he said, he took me under his wing, took me under his wing and said, you know, you really should find a way to get to Harvard Business School. And a few years later, I was able, I was admitted and after that, I did a short stint in private equity at APAX and got married to an American who said, you've got to move to New York, so I had to find a job. And the the only firm that would take me was Perry Capital. And so I stayed there for seven years learning about investing and focused on Europe. Most of which they sent me to London to to start a European investment on. And so that's the short resume. But really, I think the. Key points were. As I often said, an immigrant, you know, feels a bit more like an outsider, they challenge the establishment. So I think that was a part of my psychological makeup to. Think in an unconstrained manner. And. Really. Yeah, Harvard Business School taught me that people weren't. Yeah, there was no reason to assume people were smarter than you. That's what I learned there. [00:03:13] Simon: And you actually, I think, came as a came out with a Baker scholarship or Baker scholar, which is obviously a fantastic sort of accolade. So I'm sure you were in great demand. But as you start out in this investing world, who were your initial and most sort of influential mentors? [00:03:30] Chris Hohn: I think one name that comes to mind is John Armitage, who runs Edgerton Capital, who was a dear friend when I was starting to learn and we found ourselves in common positions and. I got to meet him when I took a stake in the energy group, which was a handsome spinoff and remember that and. He was just starting up at Edgerton and we helped each other over the years and we've stayed good friends. I think Seth Klarman was a mentor, but a. Inspiration with his value mindset. But more than that, I think just various people who I worked with and it's an industry you learn from experience and osmosis. As much as or more than. Especially a mentor. So. Those. Yeah. [00:04:34] Simon: I suppose I'm interested that you'd have that experience at apex, then you have spent your career essentially in the listed markets at that early stage, because it's now becomes a fashionable for for PE and that industry to sort of grow. You know, to some extent, at the cost of the the listings in the public markets, what was it early on that made you tilt to the public markets. [00:04:59] Chris Hohn: Essentially, in private markets, a couple of things you. Very hard to execute a deal, you know, the define the deal, you have to. Find it at the right price, you might go for years without doing a transaction, it's more process oriented than investment analysis, so and given. My psychological makeup, which is impatient, I didn't have the patience for it. And. Or what didn't serve my aptitude, which is not really process, but analysis. And the other point to note is. Companies don't sell the best businesses in the world. You know, they don't sell those to private equity generally, they keep them. And so you buy, which by definition, you were buying inferior businesses. And. Yeah, you didn't you couldn't choose. So the public markets had better quality businesses than you would find in the private markets. And so those are. And thirdly. It's so much harder to be entrepreneurial in the private market than in the public markets and so. So if you want to have your own fund, I mean, it's easier in the public markets and the private markets. [00:06:25] Simon: All right, I think that's very eloquently answered. Thank you. Let's turn to the Children's Investment Fund Foundation or CFC IFF, which you endowed and is now the largest children's charity in the world. And you've committed over 600 million to climate change initiatives, which is a huge amount and one said, I suspect we're only at the foothills of this journey for you. What's driving this passion and what's driving the say on climate campaign? [00:06:55] Chris Hohn: I think it's widely understood now that climate change is the. Single biggest challenge of. Generation and future generations for the. Future, you know, in particular for poor countries and. This climate change isn't. Have equal effects on everybody. So in poor countries. The soils are drying out, making it very difficult and every year harder to grow food, leading to malnutrition. So. You know, the billions of smallholder farmers who are subsistence farmers are feeling the effects of. Pollution of the rich world. Okay, and there's a injustice to that. And so. I got into climate change because I was interested in children and poverty in poor countries, and I realize this effect, you know, more than a decade ago would. Would occur and. The. and the um and so that's the motivation and secondly as far as the sale on climate initiative goes the the we realize that um 35 of global emissions come from companies most companies don't have any plan to address their emissions they don't even disclose their emissions and there's no accountability mechanism for their owners the shareholders to instruct them or give feedback on what they should be doing what they are doing and so together with cif the foundation i endowed the the came up with this concept of uh it's been labeled the say on climate which is very simple it's an agm resolution that mandates a company disclose their emissions consistent with tcfd so there's a specific standard two they give their plan to manage those emissions not prescriptively however whatever format they want and thirdly there's an advisory annual agm on the plan and their performance against plan so very simple concept and uh but it can make a huge difference because it will create uh false disclosure of emissions um and the plan to manage them and shareholders you know uh then require through the vote management to justify their actions and so it's an accountability mechanism so i'm fully convinced it's going to uh make a significant difference on the um how companies look at this and the pressure on them to reduce their emissions and we already have many [00:10:05] Simon: large companies have adopted it so when you engage with these corporates um there are a lot of behaviors that you would like to see them address but how do you both prioritize your message and i suppose also help them understand the urgency [00:10:23] Chris Hohn: well um the um firstly um the uh there will be uh quite a few companies who will adopt it voluntarily but in a major part until there's regulation for this this sale on climate as there is for the sale on for executive pay say on paid in just law in the us and the uk um you would have thought the climate climate change is more important than executive pay so one has a law the other one doesn't yet but it will um but uh you know investors as a investors it's clear are willing to vote and support these initiatives if they're they're filed okay blackrock very clear they'll vote for them they have been voting for them and uh for example but they're going to leave it to the ngos and charities uh activists to to file them that's okay um uh that's happening now so uh tci is filed uh a lot uh cif is um um um and its partners are filing hundreds um because you only need 25 000 us dollars to file on an s&p 500 company so with 12 million dollars you can file on all the s&p 500 companies um you don't lose that money it's just the shares you have to hold for a year in canada it's two thousand dollars so it's very cheap to put an agm filing and because of the uh simplicity of the resolution it's clear from cases like aina which got 98 support shelves will vote for it and uh in many cases you're seeing companies rather than have a sort of a contested fight they're willing to um adopted quote unquote voluntarily i think known as a bear hug right right yeah so um it's uh it's it's it's happening the trend is happening and we've had major investors like soros fund management has uh announced they're supporting the local authority pension plans of the uk that advise you know more than 300 billion pounds uh just to name two uh there's a website say on climate.org where you can see the companies that have adopted it canadian national canadian specific moody's the rating agency has adopted it unilever adopted it royal dutch shell just adopted it glencore adopted it rio tinto zinc so the list is building yeah and these are serious companies so nobody can say this this is a joke um and it'll be down to the shareholders to make sure that the plans aren't just rubber stamped but they're actively scrutinized and where they're not good enough voted against and the proof of the pudding will be in the actual emissions and emissions intensity if that isn't declining consistent with the paris agreement at a meaningful rate then i would expect shelters to vote against the plans and [00:13:32] Simon: vote against the boards all right it was your former colleague from apex ronald cohen who i think i said just said just the other day that doing harm has become risky business and i'm intrigued where where where are you meeting reculcitrance or at least uh some pushback yeah it's um [00:13:53] Chris Hohn: there's some uh us companies that uh want to fight on it so um charter communications where we have five percent holding some seven billion dollars of stock we've been a long-term shoulder they they've refused to to adopt it they've notified us and so it'll go be contested at the agm um which is a little bit surprising because they're not a heavy emitter but uh there's uh clearly um um the um you know it's uh um the mindset will still need to change um where people think it's optional to pollute and not and not and not uh actually disclosure of pollution uh to realizing that it's not an option in the eyes of your shareholders so you know these are these battles are inevitable and um it's important that shareholders send a message to the managements that refuse to um disclose emissions or or have a credible plan to manage them and refuse accountability that that won't be accepted and so um this is a you know this is why i'm doing this podcast to to explain that actually greenhouse gas emissions pollution generally it can have an effect on long-term returns it will you know because carbon is going to be regulated um the the there'll be carbon there are carbon taxes already of a significant nature in europe they'll spread through the the rest of the world you lower your cost of capital if you're the the greener you are but that debt and equity and your relationships and image to your customers and employees is improved substantially the greener you are so it's you know a a win to do so and it's not it's not really optional anymore uh but some companies still backward looking and the investors need to explain that to them i mean the first one that i won with arena was contested by the by the board they said vote against it but i got 98 support and so they changed their view in a final few days but uh that was a fact so it's going to be a fight in in in many cases and uh and i'm asking for shareholders to realize it's in their self-interest to um uh instruct boards that they are the owners and they want this information they want this accountability mechanism and it's uh ultimately [00:16:43] Simon: in the interest of the of the company i think it was the wall street journal that quoted you with the example of moody's which said it was a mix of cajoling and public shaming and so uh so there's clearly a carrot and stick at work here i i guess that the thing that um i'm not sure i understand is that you're a global investor uh but could we be seeing a sort of a bipolar world where you get western adoption but you get eastern resistance or indifference to this mission [00:17:13] Chris Hohn: yeah so it's a good question we want to bring it to asia um um there's already been filings made by australian um uh fund managers and and ngos on uh just recently on woodside petroleum and um santos two of the big oil and gas companies there uh so um the australians get it you know the country is sort of burning down from climate change and so they they really understand climate change is a clear and present danger so australia is moving now um um former prime minister malcolm turnbull supporting that we're going to um uh work in japan looking to work in korea china we haven't uh i think uh um may uh um may not be possible we have to study it it's it's uh has to be reviewed but certainly japan korea australia we uh um um we're going to be working and just to start yep we want to go so there's no um how will that um uh in particular we want to um address the banks because the banks are financing the dirty economy and a special resolution needs to be put to their shoulders which is disclosure of carbon intensity of loan books and they're lending on fossil fuels oil gas coal yep so that investors can track are they cleaning up their loan books yep and of course it will require them to get the information from their um from their borrow from the from from the boros yep so we'll have a change of business practice but how else are regulators the central banks going to regulate these climate change stress tests if the banks don't have the information so the banks are a key part of the say on climate initiative because they move they finance the whole economy [00:19:30] Simon: so this is a you know this is a plate shift going on but is there another structural impediment which is the you know the explosion of passive investing over the last three decades [00:19:44] Chris Hohn: yes you know passive investing is half of all investing and growing every year relentlessly um the um this uh is a problem because a lot of times they don't they have no interest in engaging voting um they or they vote with proxy advisors um who have hold enormous power people like iss class those fortunately those people are supporters of the same climate initiative we saw that in aina they were very strongly in favor of it um but there will be a need for these companies to um who advise the passive investment funds to do the work properly to assess where the plans should be approved or disapproved in performance so um fortunately there is an acid test which is emissions as i said so there's an objective test unlike pay where higher pay may be justified or not justified it it's it's harder to assess but in this case higher emissions intensity can never be justified if you're trying to decarbonize so [00:21:02] Simon: um the um but uh so so that's clear um and the say on climate uh mission as we said we'll be releasing it with the emails that go out where this shows www.sayonclimate.org um and i talk a little bit about the charity which um has clearly been you know an extraordinary success and vehicle and uh you know the beneficiaries obviously have been globally dispersed i i suppose a general question is what part of the charity has given you the most satisfaction [00:21:45] Chris Hohn: you know i think um i work in malnutrition um neglected tropical diseases um family planning these are all very important things and um um simple yeah so the health side i think is is closer to seeing the direct impact on on people um simple things could be clean water with you know drilling in ethiopia for clean water uh without which people can't exist and the um surgeries for people with um trachoma you know so direct direct impact yeah really um i think where you can really see with your own eyes what's being achieved so health health side i think is uh uh all the programs are listed on the cif website and um um um but at the same time i recognize that climate is trumps everything ultimately if we destroy the the soil and are able to grow you know food um we're um that will trump any health initiative we could ever attempt do you feel sometimes like you might be uh [00:23:12] Simon: do you feel sometimes like you might be uh not quite like sisyphus but you you you are embarked on this mission and you are a minority a small minority are you surprised that there aren't others who are [00:23:22] Chris Hohn: you know embarked with you um you know vocally yeah it's an important question because uh no no individual can change everything and um um but we can set an example um and uh do our part and uh all of these things um you know i think ultimately there's a these problems have a sort of a rooting and a solution in in spiritual space um because if people want to live a life which is selfish you know pollute as a company or hoard their money rather than share their wealth then uh we can't ever solve the problems and so i would say um the root cause is selfishness and um um and uh i i'm not um um you know i'm optimistic that the world is going to change and uh that crises like the coronavirus we show people that uh we don't no one lives as an island you know no one's everyone is impacted by the well-being of everybody else climate's another example of that so these pandemics and climate change they have a common uh thing that they they show us we we it's you know we're one world you know we're not unconnected from everybody else and so the um um but um we um um you know we can only um so someone said to me uh if you want to change the world change yourself [00:25:26] Simon: yeah i'd like to ask you a slightly tangential question which is clearly market euphoria around bitcoin i think it's uh you know mining of bitcoin there was an article that talked about this equivalent electricity consumption of chili and the judge business school has just come out with some very good work on this yeah how would you react to uh and there are some companies or admittedly they're small suddenly deploying reserves in dollars or euros suddenly in bitcoin and are you surprised there hasn't been more conversation about you know the obvious downside of uh you know of [00:26:03] Chris Hohn: bitcoin's mo yeah i mean it's uh i'm not surprised because most investors are just passive bad things will happen and they don't say anything don't do anything i've seen it all my career they don't act as owners and so the problem is within the passive uh phenomenon has made it you know a hundred times worse because suddenly half of them it wasn't that many shareholders cared before but now half of them definitely don't care yeah they're allowed to get so it's um it it's uh a problem um so i i i think uh you know companies investing in bitcoin is crazy and uh but the fact that people don't seem to care is uh [00:26:59] Simon: indicative that they don't act as owners yes yes so that you know that probably brings us into this you know some questions around investment strategy i mean your track record has been absolutely extraordinary at tci and you know we know what a difficult business this is i'm quite intrigued about how you've if you have altered your investment process over the years that you've run tci and if [00:27:23] Chris Hohn: so how sure um we've become more quality uh focused in the you know in our choice of companies to invest in and when i started investing with look at anything bank a minor um you know all sorts of things and uh steel company and over the years i realized there's good companies and bad companies and i became more discerning at what was good and what was bad and so and um and uh realized good is better so with quality we became much more quality conscious focus on quality compounding less of an activist and uh because you know good companies generally tend to be well run as well so it's we do less activism and [00:28:16] Simon: more let the quality of the companies do the work right well of course that actually makes me makes me a little bit better so it's a little bit more complicated but it's a little bit better i mean i mean i'd have to say that for some of us we felt very foolish when we look back and realized what we'd missed you didn't miss the london stock exchange i'm intrigued what did you spot that so others missed in that early transformation of the lse i mean i'd been invested in exchanges for a long time [00:28:45] Chris Hohn: right from the start of tci and deutsche borse you were next um so we knew they were good business but interestingly um yeah xavier had transformed the company from an exchange into a diversified financial services uh business and um their um um their clearing business um was um um you know an extraordinary uh business um um and uh swap clear and uh the swap clearing um and um they had several others like this so really network effects the index business very attractive graphics uh light growth and um so with uh very high barriers to entry um so um driven by the passive move so somebody transformed the company through acquisitions and uh um and that's continued to be the case so um i think that uh people have been um at um yeah so really that uh the the ability to add value through acquisitions is [00:30:03] Simon: really um something people hadn't uh appreciated um well that demonstrated i guess your long-term sort of uh holding perspective to which you've already um you know alluded um i i noted there was uh somebody leading uk pr firm that says uh said that the ceos typically tremble when tci appears on the register does that has that surprised you and to what extent are you simply able to remove emotion which is so often the enemy in this investing business from from from the identification of opportunities [00:30:38] Chris Hohn: well as you get older you um get more patient and um as you have more capital you get more patience uh and so you and also this one evolves and uh as a human being you you you realize if you you can probably achieve more through being constructive than than finding people and uh so i think you know i'm trying to work through persuasion as much as i can and um um um because no one no one doubts that we're willing to file a resolution or or horrified if that's what's needed but they also realize that we you know we're actually having you know the company's best interests at heart it's the power of the argument okay so you know the uh aina when we filed the resolution it wasn't uh it wasn't uh that um no they weren't happy uh they they but they found it very aggressive and um but the board said his points are reasonable fix the plan make it better and um and they did so you know i've come to believe in the power of the argument same climate is winning not because of me or if you know how i could wield over a company but because the idea resonates with people because of [00:32:24] Simon: its simplicity and and intrinsic uh logic um and i guess that staying with the say on say on climate how will you benchmark and judge yourself over the next five years given how immense at one level [00:32:43] Chris Hohn: the undertaking is well we wonder we could judge ourselves by the number of companies adopting it large companies okay and particularly those that matter banks high emitters uh it's all very well if you know you leave it's an important company but maybe it's not as important as this as exxon mobil yep so so or bp yeah in terms of emissions so um we can judge ourselves by the intense uh emissions absolute level of emissions and emissions intensity reductions of the companies where it's filed to judge ourselves from the um number of investors a quantity of money run by company by investors who were uh um supporting it uh regulation we want to see this as a regulation we'd like to see it in the uk the us every country in the world so number of countries major countries that regulate it so these are some of the metrics that we would measure our success against so i'd like to ask some more general closing [00:33:53] Simon: questions you um in your position as uh you know as an immense philanthropist i i i think i've read have you know worked with and been in discussion with you know other great philanthropists like bill gates and warren buffett and i wonder what struck you most from working and speaking with some of these other figures [00:34:15] Chris Hohn: yeah i know bill gates i've had a lot of respect for him we've worked together on climate and um health uh he's uh you know authentically cares and um um and i think um the um um there's um yeah the authenticity and uh is important and um i just um attention to detail yeah he's you know bill's uh you know he he's he works he's a he's a hard-working person yep so work ethic and uh so um really uh you know highest respect for for bill gates uh so um and the leverage that he's created through with warren buffett of the giving pledge where he's created a sort of a club if you like of the people willing to give away the majority of their wealth and commit that uh to philanthropy and so he said uh you know and warren buffett uh you know respect for him uh you know respect for him gifting uh to bill gates his wealth to um to take on you know it's uh you know but that was his the greatest uh um um the greatest achievement of warren buffett you know he's respected as an investor but he should be more respected as a philanthropist [00:36:01] Simon: yes yes well we haven't had bill gates on the show we would love to have bill gates on the show so maybe we'll have a conversation with him and be able to continue some of these themes what advice would you give to a 20 year old chris hey no follow your passion that's what i [00:36:18] Chris Hohn: did say to my son you know whatever it is yeah um the um um we life is uh really too short to not enjoy every day of your life and find out who you are discover who you are self-analysis okay it's important you know people can people think um life is about doing things okay what you achieve but that's all wrong the real uh secret of life is uh who you become so that's what i would that's my biggest piece of advice figure out who you want to become not what you want to do you know nobody really focuses on what they did at the end of the [00:37:19] Simon: life it's just who they were so i can ask you a very different question i have uh three children i think you have triplets somebody said to me when i went from two to three the football analogy is you go from man to man marking to zone coverage what's been more difficult managing your children or managing [00:37:36] Chris Hohn: your investments well children can't really be managed so they uh they're they're they're all uh college now so they they uh universities so the uh no more no no i don't think they were ever manageable they uh so they're they're independent beings so i don't think investing is that hard the hard part of investing is this is warren buffett said it's temperament you need to have the right temperament [00:38:14] Simon: yes well a final question which we do ask after the the book of this name which is if you could tell our listeners just one thing what would it be yes okay um i would um um i would in um [00:38:44] Chris Hohn: encourage them uh to um um evaluate uh who they are who who they would like to be on a spiritual level and uh because that drives everything so something i recently understood the last few years and uh it was an [00:39:10] Simon: important discovery for me all right detail okay so chris thank you very much indeed this has been terrific for me it's been just very informative i think that the your initiatives say on climate is an unstoppable force i think you quoted knowingly or not john dunn no man is an island and i think that is the sort of the recognition that uh you know as investors we can't be selfish that there are multiple considerations and consequences of all our of all our actions um and the advice to young which is so important is follow your passion but also to think about who you want to become so with that i want to thank you once more for your time it's chris home it's been an absolute pleasure having you here today thank you great bye