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Magazine Issues » June 2020

Opinion: Family fortunes

Fiona_RintoulThese are crazy times. Faced with a blizzard of challenges, investment managers are seeking new solutions and new ways to dice up the market for clients. One such is the Pictet-Family fund, launched at the beginning of June.

“Despite the fact that founder or family-controlled companies represent almost 20% of the MSCI ACWI index, we found that there were very few investment approaches giving investors the opportunity to capitalise on the prominence and strengths of family businesses – especially within a global equity strategy,” says Alain Caffort, senior investment manager for the fund. “The Pictet-Family fund aims to fill that void.”

The word ‘family’ is much misused. It sounds cosy and reassuring, but in certain contexts, it isn’t clear what it means. As with much imprecise language, estate agents provide the best examples. What is a family bathroom? My friends, it is a bathroom. Governments are also key players. ‘Hard-working families’ is a horse much flogged by politicians of all hues.

So, what about family businesses? What are they? 

‘Businesses run by families’ doesn’t adequately define what Pictet Asset Management has in mind with the Pictet-Family fund. The fund is a repositioning of the Pictet–Small Cap Europe fund, now recombobulated to concentrate on ‘family-run businesses’ but with no geographic or market-cap constraints. For the purposes of the fund, a family business is defined as a listed company where a person, often the founder, or a family hold a minimum of 30% of the voting rights. 

This investment universe of about 500 companies globally is a broad church that covers companies ranging from Schroders to H&M. The founders quite conceivably might not be a family. No matter. The rationale behind the fund is that family businesses outperform other businesses. There is some research to support this view. And Pictet Asset Management offers reasons as to why it might be the case, including careful stewardship. 

Having worked for a couple of family businesses, I confess to having issues with this. Pictet describes careful stewardship as the desire to invest now for the success of the next generation and says, “No generation wishes to be the one who gambled the family silver.” Perhaps not. But there is also the phenomenon of Numptie Junior coming to head the firm simply because he is Numptie Junior. As a Glaswegian, I am bound to think of the fourth Hugh Fraser, one-time chairman of the House of Fraser department store group, which began in Glasgow in 1849 as Arthur and Fraser and once incorporated Harrods. The fourth Hugh was criticised in a 1976 stock exhange report for dealing his own stock to pay off gambling debts and accused of “ignorance of financial matters”. He died in 1987, aged 50, by which time the Al Fayed family owned the House of Fraser group.

This brings me to Volkswagen AG, which features second on the Family Capital list of the world’s top 750 family businesses. Where to start? Whatever we may think about the emissions testing scandal, careful stewardship it was not. 

Pictet AM also suggests family owners have a longer-term perspective. As their wealth is tied up in the business, they tend to reinvest for growth and maintain stricter financial discipline.

Some of them probably do. But I bet some of them don’t. Of course, the Swiss firm’s aim is to find ones that do; it’s not simply about invoking the word ‘family’. Which is just as well. For family businesses are as heterogeneous as families themselves.

Fiona Rintoul, editor-at-large at Funds Europe

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