Pass it on... family firms hold the key to wealth that will last
PICTET Group is one of the largest banks in Switzerland, focused on advising customers on how to make the most of their money. Founded in 1805, the firm has remained in family hands ever since, with the eighth generation still taking an active role in the business.
This family culture makes Pictet Group better placed than most to understand what makes family firms succeed. As such, its Pictet
Family fund, launched in the past fortnight, is worth a closer look.
The unit trust invests in listed family firms around the world, using carefully chosen criteria to select those that are most likely to deliver robust, long-term returns.
The backdrop i s promising. According to independent data, family firms generate between 50 and 70 per cent of the world’s economic growth and account for more than half of all private sector employment. Listed family companies also tend to perform significantly better than their peers.
The Pictet fund defines family firms as those where the founder or family owns at least 30 per cent of the shares. It invests where there is decent liquidity, that is, where more than £3 million of shares are traded on the market every day.
According to the firm’s research, there are about 500 such companies worldwide and they have outperformed global markets by 46 per cent over the past 12 years – an eye-catching achievement.
Analysing all these businesses, Pictet has created a portfolio of just over 50 firms that it considers particularly promising.
Some businesses have been in the same family for generations and are well-known, such as the French luxury goods maker Hermes and the Swiss drugs giant Roche.
Some are still run by their founder, such as the US cloud computing specialist Veeva and JD.com, China’s largest online retailer, whose chief executive Richard Liu established the business less than 20 years ago. Right now, just one firm,
Ashmore, is UK-based. It has been led by Mark Coombs since the investment manager became an independent entity in 1998.
Most companies in the fund are based in America and Europe, but about 20 per cent are located in Asia and Latin America.
Firms come from a range of sectors but share certain key characteristics. As family or founder-run businesses, they are conservatively managed, so they do not take on excessive debt or excessive risks. They also take a long-term perspective, conscious of the present but also investing for the future.
Roche, for example, invests more in research and development than most of its competitors, about 20 per cent of annual turnover, equivalent to billions of pounds. And its Covid-19 antibody test has been approved by regulators in the UK and overseas.
Pictet obviously l ooks for a strong fi nancial t rack record among its companies and many are at the top of the tree in their respective markets, such as JD. com or Hermes.
Perhaps surprisingly for a family-centred fund, Pictet Family is focused on growth so it will reinvest dividends paid out by companies in the portfolio. Over time however, this should boost returns for investors.