Hedge fund TCI says first-quarter performance flat as VW, Porsche drag -letter

* Porsche investment down 1.1 pct, VW down 1 pct - letter

* Fund down 0.3 pct in three months to end-March - letter

* LSE/D. Boerse to 'bend over backwards' to get deal done (Adds details on VW campaign,)

By Maiya Keidan and Simon Jessop

LONDON, May 23 (Reuters) - Activist hedge fund TCI, which has called for rapid reforms at Volkswagen (LSE: 0P6N.L - news) , said the German carmaker and its Porsche unit were the biggest drags on the fund's flat first quarter performance, according to an investor letter.

Billionaire Chris Hohn's London-based hedge fund wrote to the VW board on May 6 demanding that the carmaker - which is still recovering from an emissions scandal - overhaul its "excessive" executive pay scheme as part of a plan to boost profits and end years of "mismanagement".

VW's shares have fallen more than 20 percent since the scandal erupted in September 2015 and were trading at around 134 euros ($150.04) a share on Monday. TCI, however, in the investor letter seen by Reuters, said the shares could rally to 200 euros as the carmaker will have to cut costs, although it did not give a target date.

"We think the humbling experience of the crisis, together with significant management changes, will provoke VW to cut costs aggressively," Hohn said in the quarterly letter to investors.

TCI said it made a loss of 0.3 percent for the first quarter, after bouncing back from an 8.4 percent loss in January to post gains of 3.9 percent and 4.8 percent in February and March, respectively.

It (Other OTC: ITGL - news) outperformed an average hedge fund loss of 0.63 percent for the first quarter, according to data from Hedge Fund Research, but TCI's letter to investors showed that its holding in Porsche lost 1.1 percent, or $123 million, in the first quarter and its VW holding lost 1 percent, or $113 million.

TCI has previously told Reuters it wants VW and Porsche to abandon their current holding company structure and merge, loosening the grip of the Porsche-Piech family.

VOLATILITY

After coming through the quarter relatively unscathed, TCI told investors total assets in its Master Fund at the end of March were $10.99 billion, up 0.5 percent from the end of December.

Global stock markets were hit hard in January but most had recovered somewhat by the end of the quarter in which the MSCI World index ended down 0.8 percent, Reuters data showed.

Helping to support the fund over the period was its stake in Time Warner Cable (Xetra: T3W1.DE - news) , which contributed 2.4 percent to its performance, or $266 million. Spanish airports operator Aena (Dusseldorf: 26876733.DU - news) was second with a 1.1 percent contribution that added $117 million.

Among its other holdings was London Stock Exchange (Other OTC: LDNXF - news) , currently in the process of merging with Deutsche Boerse (LSE: 0H3T.L - news) , which lost $11 million for the fund during the three months to end-March.

On the merger, Hohn said he remained confident the exchanges' management would "bend over backwards" to get anti-trust clearance, and believed they would be willing to divest Deutsche Boerse's OTC swap clearing business, if necessary, to do so. ($1 = 0.8931 euros) (Reporting by Maiya Keidan; Editing by Susan Fenton)