TCI, established in June 2003 by Christopher Hohn, is the investment manager of The Children’s Investment Master Fund and two feeder funds. The hedge fund is the largest and most aggressive activist investor in Europe.
TCI recently built up a €1.2 billion stake in VW, a company that suffered a €1.6 billion loss in 2015; the worst ever result in its 78 year history. The losses are largely as a result of the diesel emissions scandal where VW has admitted it installed defeat devices in 11 million of its diesel engine vehicles. These devices were used to understate emissions of harmful nitrogen oxides in official tests.
Many investors have criticised VW because although some remuneration was withheld in 2015, the 12 members of the management board were paid a total of €62.3 million.
TCI was prominent in previous campaigns against Deutsche Bourse, forcing the resignation of its chief executive and against the Dutch bank ABN Ambro which was forced to put itself up for sale.
TCI has now written to the board of VW demanding a new management remuneration structure be put in place and voted on annually by shareholders. It points out that VW has double the number of employees of Toyota but produces a similar number of vehicles; since 2011, its sales volume had increased by 8% while its overall wage bill has risen by over 50%.
It also complains about VW’s corporate governance with the shareholding being tightly controlled by the Porsche and Piech families [52%]; the State of Lower Saxony [20%]; Qatar Holdings [17%] and only 11% held by minority shareholders.
TCI argues this tight concentration of shareholders has encouraged excessive executive compensation at VW resulting in poor management performance and in the business under-performing compared to European rivals. It alleges that VW has abused minority shareholders resulting in them selling their shares thus causing the company to be significantly undervalued; even before the emissions scandal, VW shares had traded at a 25% discount to its peers specifically because of concerns expressed by overseas investors about its board structures.