DESPITE their best efforts to accept the rising influence of hedge funds, many bosses felt a shiver of apprehension on hearing that Lansdowne Partners had snapped up a £300m stake in Tesco, writes Louise Armitstead.

Outranking the familiar traditional City institutions on the shareholder register, this relatively unknown hedge fund now owns about 1% of Britain’s biggest supermarket.

But Lansdowne is not just another Mayfair-based boutique. With more than £1.4 billion of assets under management, it is London’s biggest hedge fund — and also one of the world’s most successful. Since its launch in 2001, the UK equity fund has generated returns of nearly 80%.

As well as making traditional fund managers blush, the figures make Lansdowne stand out in its own sector. A report published last week by Morgan Stanley showed that single-digit returns by other hedge funds in the second half of last year contributed to a significant slowdown in inflows into the sector.

To those who know Lansdowne’s fund managers, Peter Davies and Stuart Roden, this came as no surprise. The pair were key members of the so-called ‘MAM cubs’ who, under Stephen Zimmerman and Carol Galley, generated stellar performance for Mercury and Merrill Lynch.

Davies and Roden rely on intensive research that includes everything from number-crunching to hiring independent analysts to check company information. On the basis of this research, they take large stakes in companies and hang on to them. More than 10% of their fund is now in Tesco. They also have big stakes in Yell and several utilities.

Little wonder executives are queuing up to meet them. Danielle Poulain at Execution, a broker, said: ‘More and more corporates are asking us to arrange meetings with hedge funds and, almost always, Lansdowne is top of the list.’

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