Letter #280: Chris Hohn and Christian Sinding (2025)
Founder of TCI and CEO of EQT | Norges Bank Investor Conference - What Makes a Great Company?
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Chris Hohn is the Founder of TCI Fund Management. Chris spent the beginning of his career in private equity at Apax before moving into the hedge fund world with Perry Capital. In 2003, he set up The Children’s Investment Fund, an investment vehicle that was contractually obligated to donate a portion of its assets to charity. Today, he is known as one of the world’s sharpest and most feared activist investors.
Christian Sinding is the CEO of EQT Partners. Prior to joining EQT, he was an investor at AEA Investors. He started his career as a financial analyst with Bowles Hollowell Conner & Co. investment bankers.
Today’s letter is the transcript of a conversation with Chris and Christian. The conversation starts with just Chris, before Christian joins halfway through. This was a very unique panel not just in how the guests were staggered, but also how at points the guests take over from the moderator and discuss amongst themselves. The panel starts with Chris discussing how TCI evaluates companies, how they find out if a company is a great company, sectors he likes, KPIs he looks for, and whether management quality matters. Christian then joins Chris on stage, where Christian discusses what defines a great company for EQT and what they look for in a management team. Christian and Chris then discuss thinking long term, business quality, why it’s difficult to think long term, EQT’s playbook for value creation, public market activism, private vs public markets investing, whether the best companies are private or public, and much more.
I hope you enjoy this conversation as much as I did!
[Transcript and any errors are mine.]
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Note
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Transcript
Host: Welcome everyone. We are privileged to be joined by two truly great investors today. I'll start the conversation with Sir Chris Hohn, who will later then be joined by Christian Sinding, CEO of EQT. Chris, it's a privilege and honor to have you. Welcome. I have to say I completely agree with Nicolai, probably the best investor Europe has ever seen. To back it up with numbers, 9% returns above the market every single year over a period of 21 years. Wow.
Chris Hohn: On average. Not every single year, but on average.
Host: On average. So, share your secret with us.
Chris Hohn: Well, our strategy has been to invest in great companies. But over time, I've come to refine and understand better what that means. But that's just point one: find the great companies. Point two is being concentrated. As George Soros said once, It doesn't matter if you're right or wrong, all that matters is how big you are--your position size when you're right and your position size when you're wrong. If I'm right on a 1% position, it kind of doesn't make any difference. So we'll take positions of 10-15%, in the past even 25% of the fund. And that's a double-edged sword if you're right, it's fantastic. If you're wrong, it's very painful. So concentration is an important facet, because there aren't hundreds of great ideas and companies. And you might say, That sounds risky. Then it is. And then I would ask you, Well, how do you define risk? And the best definition of that was, for me, given by Warren Buffett, who we all love. And he defined risk as not knowing what you're doing. And then the third component I would say is long- termism. You can find a great company, but if your time horizon is very short… the vagaries of what Keyne’s called the voting machine--he said, In the short term the market is a voting machine and only in the long term is it a weighing machine. And going back to Warren Buffett, he was asked was Coca-Cola a risky investment when he first made it. And he said, Depend on the time horizon. Over one year, one month, very risky. He couldn't sell where the price would trade at. It doesn't necessarily reflect fundamentals in a short or even medium term. And so I do think time horizon is a critical thing. And even intelligent investors are unable or unwilling to have a long-term horizon. And I would put engagement as another component of that, for us, of adding value. So find the great companies, focused or concentrated portfolio, long-termism, and engagement--act as an owner, in simple terms. But a lot of investors get confused that the thing that you want is growth. If you look at industries like airlines, they've been growing for 100 years, maybe 5% a year, fantastic growth. But collectively and cumulatively, the industry never made any money because competition was too strong. And so growth per se, growth by itself, is not a guarantee of making money. So you need, critically, barriers to entry to competition, and sustainable value add, and high value add, so it's actually a combination of barriers to entry and high value added that you can charge for. And of course, then growth has a value. So everybody would agree with those statements, but the the interesting thing is, going back again a third time to Warren Buffett, he said Most moats aren't worth a damn. Because you think you've got a moat, but and then it erodes. And so the real thing is sustainability of moats.
Host: So how do you find out whether a great company remains a great company over time?
Chris Hohn: Yeah, well, one of the things is to understand the--the forces of competition and substitution and disruption are very powerful. And we've learned, just as in the same way people underestimate complexity, structurally, most investors underestimate the forces of competition and disruption. Why? Because they're short-term. Keeps going back to the same root causes. And so we learn through examples, through, sometimes, experience and suffering. One of my investments 30 years ago, before I started TCI, was with a European media company that Bain Capital had bought control of, and--it was a monopoly, and they bought control--it was like 1bn Euro valuation. And the stock went to a 50bn valuation. 1bn to 50bn. And then it went to zero. And it was a yellow pages company in Italy. Because the internet hadn't been found, people thought it was a resilient monopoly. But Google destroyed the company. So we sometimes don't know. We can't know what hasn't been invented. So then how can you know anything, you might say. It was Dick Cheney who said, Unknown unknowns. You don't know what you don't know. But certain industries are more prone to disruption than others. Your risk is much higher. And so we try to avoid those sectors, because you're asking for trouble. Or limit our exposure. And one of those sectors is technology.
Host: So what are the ones you like?
Chris Hohn: I've always liked, as one example, infrastructure, which is bit unusual. It's not that sexy, it's a bit boring, owning toll roads and airports and transmission lines, cell phone towers. But I was born into a poor family, and so I always wanted to get my capital back. I thought that was a good starting point: Don't lose your capital. And so I sort of believed in physical asset backing, which most investors don't look at tangible book value. That's something forgotten in economic textbooks as a metric but--or a placement value--but an example is, maybe 10 years ago, 9 years ago, the Spanish government approached us about taking an anchor position in an IPO of their airport, Aena. Airport was basically brand new, huge undercapacity, and 75% of the value was in unregulated shops and car parks and--complete monopoly, unregulated, and huge growth potential. And they sold it at a 15% free cash flow yield. And what we could see is that you could never replace these assets--Madrid airport and Barcelona airport. They’re irreplaceable. And they sold at the right price--valuation matters. They sold it at 15% free cash flow yield.
Host: So I learned at school that a great company is not necessarily a great investment, but you look at something like cash flow yield to tell you now it's a good time to buy?
Chris Hohn: Yeah. And sometimes people say things are cheap for a reason. Now people were concerned about government ownership in this case, regulation. And the government did impact it. They limited the compensation of the CEO to 200k Euros, and ultimately the CEO left. He was a very good CEO, the original. But it didn't matter, because the monopoly was there, the assets were there. So I like asset backing of infrastructure. Another sector that we've--
Host: Can I just ask you one question on this? If you like an asset, a physical asset, does management quality matter? Is it important?
Chris Hohn: Less so. It matters for reinvestment risk. But one of the things I mentioned that we do is we act as owners. People have different terms for that--constructivist and activist--but I really think, fundamentally, it’s acting as an owner. And we were worried we didn't have any control, but we had influence. I was asked to be on the Board, I was on the Board for three years of Aena, the airport company, and we went to the government, and to the board, and said, Look, you're throwing out all this cash flow, billions of Euros of cash. You don't need it. We want to propose an 80% dividend payout ratio. And for you, that's dividends you can spend. And they agreed to it. And so my reinvestment risk of management was limited then. Very limited. And so there are things you can do to mitigate risk. But it does matter. Another infrastructure asset we've been invested in is in the toll road sector, for [OVL], it's where--there's a family that have about a quarter of the stake, and they're fantastic capital allocators. They just reinvest--they sold Heathrow airport recently, at a low return, and they’re reinvesting in monopoly toll roads at high returns, and they just really know their business and have high alignment of interest. But again, Buffett said you've got to--ideally you should invest in an industry where a monkey could run it, because one day they will. And so I want to find an asset where--because there's no guarantee the CEO comes back. And so I think you have to invest in a business where it's a great business and it doesn't depend on the manager, because there's no--the assets are ultimately more reliable than the manager. So in this sort of where are the moats, we talked about infrastructure and physical non-replicable assets. Another space we like, as an example, is aerospace. Things like aircraft engines and manufacturers like GE Aerospace and Safran. And we like that space because the barriers to entry are extremely high, in terms of intellectual property--it's so complicated to make this product that there have been no new entrants for 50 years. So new entrants is a sign of the barriers to entry. It's one of the criteria you can look at. And why is that? Not only is it very complicated, you make the money in the spare parts, so once you've got this installed base, the new engines are only a small percentage, and the airframers only want one or two engines--it's too complicated otherwise. There isn't the room for multiple competitors. And then for various reasons, it's very difficult for competitors to enter the replacement parts. And so that's another space we’re very--intellectual property can be a barrier.
Host: Fascinating. And I'd now like to invite Christian Sinding, CEO of EQT, to join us. Under his leadership, EQT has quadrupled in size, became Sweden's fourth largest listed company, and a leading forward-thinking organization in private markets. Welcome Christian.
Christian Sinding: Thank you. Good to be here.
Host: So Christian, what defines a truly great company? For EQT.
Christian Sinding: It's the favorite question of the year, I would say. So interesting, actually, that I did a poll of my colleagues. I called the top investors at EQT, and it came out very consistently, actually, into three different categories. The first one has to do with the industry or the sector that the company is in. And what we've sharpened over time is to find long term themes in society that are not dependent necessarily on the economic activity, but on some other drivers, like digitalization of society, decarbonization of society, aging society, those kinds of broad themes that are going to run for a long, long time. Behind that, infrastructure actually is spot on in there. Then you go to the company. And we're looking for companies that have a great business model, recurring revenues in some form, some kind of competitive moat, if you want to call it that, to use your language, competitive advantage, and something you can continue to build on that has lots of opportunities to grow, both organically through acquisitions and change. That's kind of category number one. Category number two is leadership. So a couple of colleagues said: CEO, CEO, CEO. And of course, we own the companies, we control the companies, so we can install the board, we can install the management if it doesn't already have a great one. But I think it's broader than CEO. I think it's the leadership group, it's the organizational design of the company. It's a cultural health. We heard a lot about these things earlier today. Culture beats strategy for breakfast, as they say. And I think we heard that for David and others. Very much true for EQT. So that's category number two. And also ability to attract and retain talent. Very important. Category three is--we also heard about from Otis and others, and even Novo Nordisk. It's actually the ability to take the position that you're in, the strategies that you have, the leadership group that you have, and execute relentlessly, and drive a culture of continuous improvement. So it's not good enough just to be a visionary great CEO or a great team, you also actually have to drive execution every single day. If you think about the four companies that we heard about this morning, you find those themes across all of them, and in various forms.
Host: Yeah. It sounds like you put a bit more emphasis on leadership than Chris does in his approach. What are you looking for in a CEO and in a leadership team?
Christian Sinding: I'm looking for someone who has a vision. Doesn't have to be visionary, but someone who has a real vision. Where are we taking the company, and why? Someone who can bring people together, who can inspire, but also be sharp enough to execute. So combining those two elements I just talked about. I think the ability also to change your mind if a better argument comes. And have this mindset, you talked a little bit earlier about how do you deal with technological change and threats, and to have the mindset of what we call it: future proofing. What does the company need to stay ahead of the curve? What threats are coming, what opportunities are coming? Right now it's AI, and then it'll be AGI, and then maybe quantum computing, whatever. All these things are impacting business, sustainability, decarbonization, all these--how do you deal with that? Do you wait to see what happens? Or do you take the bull by the horns and actually drive change? Those are some of the elements that we're looking for. And then not complicating things too much. Sticking to what's important.
Host: You mentioned long term themes. Chris, is this approach that Christian takes on investing in long term structure themes something that resonates with you?
Chris Hohn: Yeah. The average life of a holding of our current portfolio is eight years. Now, the average holding of a US stock is less than one year. So investors are absolutely, on mass, shorter trading oriented... So why--but we should ask, Well, why is long termism--is it a good strategy? Why?
Host: I’d like to think it is.
Chris Hohn: Well, we should ask the question, why? I always say, justify. And if you look empirically, it turns out that the very best companies, high ROEs, they stay good. They don't disappear overnight, generally. And bad companies stay bad--low ROEs stay ROEs.
Christian Sinding: I totally agree. We have an expression: Good companies are better than they seem; bad companies are worse than they seem. You got to get rid of the bad ones and just double down on the good ones.
Chris Hohn: Yeah. There's persistency. And the value of that company is only seen over the long term. So you get--they say there's no free lunch in finance, but actually, I do think long termism in a great company is a free lunch, because the--if you look at any sell side model, they'll go out three years, or two years. Why? Because that's the time horizon of the typical buy side investor--one or two years. But what if it can keep being good for 30 years? Then you're completely undervaluing that company. And people don't look at it because there are--most companies, 95%, are mediocre or bad companies. They meet their cost of capital, but they're not super companies. One of the companies I mentioned, aerospace, we invested in Safran, we've owned it for 13 years now. We're actually one of the largest investors in the company. And we made around--more than a 20% IRR for 13 years. So long period, that duration. Very long period.
Christian Sinding: What company was that?
Chris Hohn: Safran. They're a joint venture with GE Aerospace, in aircraft engines. And so, we have investors who would come in and say, Well, we want new things.
Host: Why is it so hard for investors to be long term?
Chris Hohn: They think new is better.
Host: I understand there are commercial pressures, but there must be more.
Chris Hohn: They think new is better. I say to you, change--
Christian Sinding: I think volatility. I'm obviously interested in the private markets. One of the benefits of the private markets is you're kind of forced to invest for the long term. We own companies. We own them for 5-10 years at a time. Now we're actually starting to own them for longer because we realize that winners need to be owned longer to really get the maximum value creation out of them as well. But you're kind of forced to invest for the long term. And even in these products that now individuals can invest in in our industry, they're also very long term in their nature. And our valuations aren't as volatile. We can discuss why, but it is because we're not that interested in what it's worth right now. We're interested in what the companies are worth--when we buy a company, we're interested in what it's worth in five years or in seven years, and what we can do with that business in the meantime. And the extreme, we don't even care what it costs so much today, as long as we know that we can take it to here, or we're highly confident we can do that with time. That's actually more important than what we pay--100 or 110 today--doesn't really matter if you create 400 or 500 or 600 up here, later.
Host: So how do you do that? You identify a company that you want to buy, pay a price that you're happy to pay, and then what's the playbook to create the value?
Christian Sinding: Well, the playbook that we're trying to industrialize is we create a full potential plan for the business. We kind of dream, say, if this company had every resource in the world to be able to grow, develop, and go to the next level, what could it look like? If you did all the M&A you wanted to do, all the innovation, you get rid of the things that aren't working, upgrade the organization, improve the margins, all that kind of stuff. Okay, so that's the full potential. What can we actually get done in a reasonable time period with the people that we have involved, either globally or in the company, or whatever? We bring lots of resources for the company, whether it's governance or IT skills or AI skills or sustainability skills or expansion or M&A, whatever the company needs, we try to bring those resources in, and then we push the gas pedal pretty hard and we go for it. And we very often don't meet the full potential plan, but that kind of mindset helps you drive the company forward. And also, really deciding which are the big things, a little bit like Novo Nordisk we heard earlier, what are the big initiatives that can really make a difference, and then making sure that you put the best people behind that, enough capital behind it, and those things. That's what we can do in the in the private markets. It's a lot of fun.
Host: What can you do in the public market as an activist? And your approach has evolved a little bit over time.
Chris Hohn: Yeah, it's an interesting debate, private versus public. Because I do think the very best companies in the world are public companies--not every one, but generally. And one of the reasons is, in many industries, scale and scope matter. Small is not beautiful. An example of this is video conferencing, where Zoom, new innovator, brought out video conferencing, and Microsoft launched Teams and just distributed a free, integrated in their bundled Office product. Now, people say Zoom was a better product, but Microsoft won because they had this bundling strategy, and they had scope. They had advantages of scope, and customer relationships, and so--I think people underestimate, sometimes, these powers of big companies, of incumbency, to crush a competitor. But the public market investor doesn't have no influence. If they're willing, they can influence. And sometimes, stopping stupid things. And an example of Safran, we have this great company, bought at 8x earnings, it was compounding at 20%, and then one day they came out and tried to make an incredibly stupid acquisition of a company called Zodiac. A wild overvaluation using shares which were half their intrinsic value. So it was doubly bad. And we fought the deal, and in the end, they cut the price in half and then paid only in cash, and the share price doubled. We got sued by the seller, I was sued personally for 100mn Euros, and my CFO came to me, he was very stressed, one night, saying, It's all right for you, you can afford it, but it's gonna bankrupt me. Because the seller lost 1bn Euros, but few investors will act like that. Most just accept it. But in the end, they cut the price and blamed us, which was fine. And alls well that ends well. They never did silly things again.
Christian Sinding: But then you have to, if I may jump in, you have to have a big enough ownership stake to actually have that influence, don't you, in some form, or at least a real voice that they will listen to. And the challenge in the public markets, if I may challenge that, is that often the companies become run by the management, right? Because they're ultimately the ones then with no active shareholders, they effectively appoint the board, and you have a bit of a governance--
Chris Hohn: That can happen. It's a big risk. And there are many companies with bad governance that become badly run. And I'm not a believer in being an activist in a bad industry or bad company. That doesn't make any sense. But there is a--I don't actually think the shareholding necessarily is everything. Can matter. We went recently on the board of a company called Cellnex, cell phone towers, and we had 10%. And so it mattered because there were four shareholders with 10% each, and so it was very concentrated. But I think the power of the argument can win. Shareholders are not stupid. Norges Bank is not going to be an activist themselves, but if an activist makes a good case, they'll support them. They'll still support them. Whatever state the activist has, 1%, 2%, it doesn't matter.
Christian Sinding: Can we go back to this statement that you had, that the best companies are public. I don't really appreciate that one. So maybe I give some examples. But I do agree with you that having companies that are strong, large, winning, beating the competition, whatever. One is very interesting that we own, which is the world's largest private education company. It's a $15bn company, but it's only got 5% market share around the world. Growing organically through acquisitions, super purpose-driven. Doing very good for society. And the competitors are Moms & Pops all around the world that don't have the resources to invest in AI and the next generation of education and stuff like that. That is a brilliant company. We've actually had it public twice, but the public market didn't appreciate it. So we've taken it private twice, and now we're just going to keep it private, hopefully for as long as we can, and just build and build and build. So I think the world is also changing, because private equity has gotten so large now, and we can move companies into longer term ownership structures, so we can actually--I think we're going to see more and more of the best companies in the world either stay private or go private and grow. And that's a big difference. And that's one of the things we're seeing in the market, while, you heard, the number of public companies is shrinking a lot, over time.
Host: And you alluded to the importance of control. You tried an approach, a private equity approach, in the listed market, with the EQT list--
Christian Sinding: I hoped we didn't have time for that one.
Host: Some reflections and lessons learned?
Christian Sinding: Yeah, we did--we tried to start a mini version of what you do. And we failed miserably, actually. After we shut the fund down last year, we delivered back like 90% of the capital that was invested, or something a little bit worse than that. And luckily, it was very small. And when we realized we weren't good at it, we actually did shut it down and focus on what we're good at, which is private markets. I think we tried to apply the models that you've heard me think about here, and talk about here, in a public setting where we didn't have the toolbox, we didn't have the understanding of how to drive influence. We thought we would have more impact being who we are, and it didn't work. So it's really about--a lot of learnings in there, back to really sticking to your guns and doing what you do well. And more of that.
Chris Hohn: There's, like everything, there's pros and cons, arguments for and against. But in private equity, you pay a price for control. You pay a premium. It can be big. Don't get me wrong, control has a high value--has a value, let's say. It has a value. But is it worth 40%, or whatever premium you have to pay in a competitive auction. In public markets, there's an offer every day. You can take it or leave it, and so I just think that that point is relevant: Entry price matters.
Christian Sinding: Do you think? Do you think liquidity is overvalued in the markets?
Chris Hohn: Well, the thing is--
Christian Sinding: Why do people need liquidity as much as they think they do all the time?
Chris Hohn: You can be wrong. That's something I learned. The Yellow Pages example was... and if you're wrong in private, there's no way out, in a short term. And if you're wrong in a public you have a chance to get out. You have a chance.
Christian Sinding: But you don't really have a chance to repair and improve, which you do in private. We can huddle down, change the management, change the board, divest under-performing operations. So it's just a completely different mindset.
Chris Hohn: To a point. We were investors in cable, in the US.
Christian Sinding: Yeah, we own a lot of cable.
Chris Hohn: And Charter, and Communications, and before that Time Warner Cable. And it was a great investment for eight years. We made 5bn of P&L, and 5x our money. But then the industry started to deteriorate. It became saturated, and more competitive, and people started overbuilding--private equity.
Christian Sinding: Yep. We bought lots of those companies. It's been one of our best sectors, actually. Interestingly.
Chris Hohn: And I sold. Because it changed.
Christian Sinding: We were buying.
Host: Unfortunately, we are at the end of the session already.
Christian Sinding: That's too bad.
Host: I would love to continue for much longer.
Christian Sinding: I learned a lot.
Host: Chris, you shared many of your secrets--he shared more in a podcast that you recorded with Nicolai, which will be released on the 14th of May. So I encourage everyone to listen to that one. We'll take a break now, so please be back in this room at 1525. But first, and most importantly, a big, big thanks to both of you for sharing your insights.
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Wrap-up
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I follow the belief of concentration of portfolio in a few assets BUT Watch them closely. Gold & Monetary metal stocks are still assymetric holdings until stock valuations in the USA revert to mean. Just my perspective.