June 24 (Bloomberg) -- Christopher Cooper-Hohn’s $9.5 billion hedge fund proposed cutting fees and easing withdrawal limits to retain clients after top executives quit and it lost 43 percent last year, according to three investors.

Clients would pay 1.5 percent of assets if they remain with The Children’s Investment Fund Management UK LLP after their three- or five-year commitments to the London-based fund expire, said the investors, who asked not to be identified because the information is private. They had been paying 2 percent. Under the proposed terms, clients could withdraw their money quarterly once they’ve been in the fund for six months.

Cooper-Hohn, who started TCI in 2003, this year scaled back his activist strategy of investing in companies and pushing management for changes after falling short in efforts at U.S. railroad CSX Corp. and Electric Power Development Co. of Japan. TCI’s loss last year, its first, compared with an industry average decline of 19 percent, according to Chicago-based Hedge Fund Research Inc.

“Some investors have been a little turned off by the extreme high-handedness of those managers who have taken an extremely hard line,” Robert Jaeger, former chief investment officer of fund of hedge funds EACM Advisors LLC, said in a telephone interview from Boston. “You can’t be so tough with your investors that you can’t keep them.”

Rahul Moodgal, TCI’s head of investor relations, didn’t return telephone calls or e-mails seeking comment. Cooper-Hohn declined to comment today.

Fees For Charity

TCI earmarks a portion of its fees for the Children’s Investment Fund Foundation, a charity run by Cooper-Hohn’s wife, Jamie. The effective fees, split between the fund and the charity, had been 2 percent until losses in 2008, said the TCI investors.

Hedge funds are starting to ease terms after last year’s record losses and complaints about costs from investors such as the California Public Employees’ Retirement System, the largest U.S. public pension fund. SAC Capital Advisors LLC, the $14 billion firm run by Steven Cohen in Stamford, Connecticut, began allowing clients this month to pull out money each quarter rather than locking them in for three years.

London-based Brevan Howard Asset Management LLP offered a “concession” on management fees for investors who agree not to withdraw money for three years. Renaissance Technologies Corp., the East Setauket, New York-based firm run by James Simons, waived the 1 percent management fee for its Renaissance Institutional Futures Fund for 2009 after a loss in 2008.

‘Activism Is Hard’

TCI sold some of its largest holdings in the past year after taking losses on most of them.

“We are going to be more cautious about it when we look at making new investments, because quite frankly activism is hard,” Cooper-Hohn, 42, told Alpha magazine in an article published in September.

Cooper-Hohn told clients this month that activism may no longer be effective, according to one of his investors. He has been a lightning rod for critics in Japan, the U.S. and Germany for his efforts.

The investors said they declined to be named because they are precluded from disclosing details about the fund.

Locust

Werner Seifert, former chief executive officer of Deutsche Boerse AG, criticized Cooper-Hohn in “Invasion of the Locusts” (Econ Verlag), a chronicle about TCI’s investment in the Frankfurt-based stock exchange. Seifert was forced out partly by TCI.

Cooper-Hohn slashed his stake in Deutsche Boerse in April to below 1 percent from more than 10 percent after being the largest investor.

The fund disposed of its stake in Jacksonville, Florida- based CSX after a two-year fight with management at the third- largest U.S. railroad and winning a place on its board. The fund bought the position for $762 million and sold it for about $500 million. TCI took a $130 million loss in October on the sale of its investment in Electric Power Development, Japan’s biggest electricity wholesaler.

Snehal Amin, who oversaw the London-based fund’s push for management changes at CSX, left TCI in March, along with Chief Operating Officer James Wilk. Founding partner Patrick Degorce, who had led the Deutsche Boerse investment, departed in January. Cooper-Hohn told investors he had added at least two analysts this year to fill some of the vacancies, according to the investors.

‘Long-Term Greedy’

TCI dropped about 7 percent this year through the end of May, according to investors, because of losses on short positions, or bets that shares would fall, as equities rallied worldwide.

The fund returned an average of 42 percent a year from 2004 to 2007, compared with an industry average 10.3 percent, according to Hedge Fund Research.

The changes to fund terms, if approved by TCI, will be effective Aug. 1. The firm would leave its performance fee at 16.5 percent of investment gains. That fee would be collected after three years, or when clients redeem, rather than annually, investors said.

The fund’s existing high-water mark, or peak value, won’t be reset for clients who remain with TCI. That means they won’t pay incentive fees until the fund recoups its losses.

“The hedge fund industry provides many opportunities to see the difference between short-term greedy and long-term greedy,” said Jaeger, author of the book “All About Hedge Funds” (McGraw Hill, 2002). “It’s good to see a well- established manager being more accommodating to investors.”

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Last Updated: June 24, 2009 12:27 EDT