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PRODUCTS


Investors look to play thegenerationgame


FAMILYBUSINESSES WRITTENBY ELLIOTSMITHER


Research suggests family- owned businesses tend to carry less debt and outperform the wider equity market


W


hat exactly constitutes a family-owned business? Opinion varies.


In a 2009 report, for example, the EuropeanCommission found there weremore than90 different definitions ofwhatmakes a family business within theEU. Pictet talks aboutpublic companieswhereone person or a familyownsaminimum of 30 per cent of voting rights;UBS goes for 50 per cent, or 20 per cent of voting rights plus topmanagement or boardinfluence. Butwherever the bar is set, two


things becomeclear: there are lots of these companies–perhaps two thirds of all businessesworldwide are family-owned, generating about 70 per cent ofGDP–andthey tendto outperform the broadermarket. For example, the CreditSuisse


‘Family 1000’ database ofmore than 1,000 publicly-listed family or founder-ownedcompanies shows that from2006upuntil June 2020,


PICTET-FAMILYFUNDTOP10HOLDINGS COMPANY


DOMICILE


1 Hermes International France 2 Jd.com


3 Meituan Dianping 4 Snap 5 Puma


6 Globus Medical 7 Estée Lauder 8 Shopify


9 Arcelor Mittal 10 Exor


China China US


Germany US US


Canada


Luxembourg Netherlands


Source: Pictet Asset Management


WEIGHT MCAP GENERATION 3.58% $118.3bn


3.20% 3.05% 2.74%


$145.2bn $258.1bn $99bn


2.63% $16.1bn 2.49% 2.43% 2.41% 2.40% 2.39%


$6.2bn


$103.7bn $161.1bn $25.9bn $19.5bn


4th plus 1st 1st 1st


2nd 1st


3rd 1st


2nd 4th plus SECTOR


Consumer discretionary Consumer discretionary Consumer discretionary Communicaion services Consumer discretionary Healthcare


Consumer staples


Information technology Materials Financials


these firms outperformed non-family- ownedcompanies by anannual average of 370basis points. Revenue growthwas higher, aswere profits, andthese superior returns can be observed across all regions globally.


CASHINGIN Butwhy is this? InMay 2020, Pictet AssetManagement launched the Pictet-Family fundwhichlooks to capture that outperformance. In constructing this fund, Pictet put in somecaveats. In developedmarkets anymarket capwas allowed, but in emergingmarkets there is a minimum of $10bn. Plus all stocks must have a daily liquidity of $5m. “Sowetook ahuge universeand


took itdownto about 500stocks,” saysAdamJohnson, senior client portfoliomanager at Pictet Asset Management. “Andwhenweranour analysis,wefoundtheyhad outperformed theMSCIACWIby a cumulative 88 per cent since 2007.” This selection of stocks is “hugely”


underweightNorthAmerica,which has been the best performingregion over the time period, andwhile sector allocation did providesome performance, itwas clear themajority was stock specific, he says. “Wewould like to call this the


‘family factor’,” saysMrJohnson. “The driversweboiled itdownto were based aroundhumanvalues andactiveownership.” Thismeans the owner’s driveand


Familymembers are inheriting these companies and don’twant to be blamed for messing things up


ADAMJOHNSONPICTETASSETMANAGEMENT


ambition, their “entrepreneurship”, is deeplyembedded within the company’s culture, he explains. Plus there is also evidence of “stewardship”. “Familymembers are inheriting


these companies anddon’twant to be theones blamed for messing things up. Theirmindset is to investnowfor the benefit of future generations,” addsMrJohnson. The concept of “socio-emotional wealth” is also important, he says.


PWMNET.COM 33


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