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FAMILY-OWNED BUSINESSES PRODUCTS&MARKETS


“We often find family offices Family businesses often tendto be


in the small andmid-cap space, says MrEjikeme, partly because larger companies often see control shift away fromthe familymembers or the large founders. Smaller companies oftenget


overlooked, he says, so can bring opportunity, althoughthis does bring natural liquidity risk.“We have all heardthe stories of fundmanagers that have got into trouble because theybought illiquid assets that they cannot sell in times of trouble. Sowe justdon’t invest in companies that tradeunder a certain level of liquidity.” AlthoughMrEjikemesays that if


an investor simplybought into a fund whichwas playing thefamily-owned themeandnothing else they could expect decent performance over time, he stresses that it is essential to apply traditional selectionprocessesontop of that. “We are looking athowprofitable


the businesses areandhowmuch they are reinvesting for the future as opposed to paying back shareholders through dividends,” he adds.


It could be argued that


companies which follow these cautious business models might miss out on certain opportunities, says Simon Moon, co-manager of the Unicorn UK Income Fund and Acorn Income Fund and lead manager of the Unicorn Smaller Companies Fund. But this is not really something he believes. “At theendof theday, ifyouhave


missedoutonhalfaper cent’s growth becauseyoudidn’t indebt the companyorbuythatonebusinessyou weren’tentirelyconvincedby, is that suchabadthing?”heasks. “Ifaclear focusoncashgenerationmeansthe business growsmoreslowly but ina lessvolatilefashion, I thinkIwould probably rather that, inahigh conviction portfolio likewerun.”


FAMILYUNION There is a natural fit between family offices and family-owned businesses, says Maximilian Kunkel, chief investment officer for UBS GlobalWealth Management’s Global Family Office, both in public, but also increasing in private, markets.


Agood fit:many family offices are keen to invest in family- ownedfirms


wanting tomake direct investments with a particular viewto be able to fully understand and to some extent potentially influence the decisions made in another family business,” he explains. Onthe other hand, for the family-


owned business, by increasingly raising capital through private markets, they are able to partner with investors that are like-minded and can potentially bring something to the table that accelerates or enhances the value proposition of the business. “So family offices often invest in businesses that are either complementary to their main business, or in a relatively similar industrywhere they can add expertise, or funding and distribution networks,” says Mr Kunkel. It is certainly true that family-


owned businesses tend to outperform, he says, though noting that this advantage is diluted somewhat as a company is passed down through the generations. “We find that first, second and to


a certain extent third generation businesses tend to do better than when youmove into fourth and fifth generation ones,” says Mr Kunkel. One reason for this is that as a


Wefind that first, second and to a certain extent third generation businesses tend to do better


MAXIMILIANKUNKEL UBS


business becomes more mature, it becomes less growth-oriented,while it is also the case that the focus of later generations sometimes shifts onto newventures. Older businesses also tend to


have extended family members getting involved, he says, and can lose sight of the company’s values. “And with that missing, the business tends to outperform less consistently,” he adds.“We find that statistically, but also anecdotally.”


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