Pictet Asset Management has announced the launch of the Pictet-Family fund investing in family owned businesses, in acknowledgement of the compelling investment story from this sector.
Two thirds of UK businesses are family owned – 4.8 million in total, of which over 18,000 are medium and large businesses and they generate over a quarter of UK GDP, according to the Institute for Family Business. In 2017, it says the family business sector paid £182bn in tax, more than the annual NHS budget and family firms employ 13.4 million people in the UK – 50% of private sector employment.
The family office impact is global. The Bank of Singapore has announced it is aiming to take a greater share of family office business with Reuters reporting ‘Its assets under management declined to $104 billion in the year to March from $108 billion a year ago due to the market downturn but assets of the segment catering to family offices, which manage the fortunes of the rich, rose 20%.’ The CEO of the Bank citing investments in China, the Middle East “as well as other parts of the world.”
The Pictet fund defines a family business as a listed company where a person, often the founder, or a family hold a minimum of 30% of voting rights. According to the managers this provides an investment universe of around 500 companies globally.
The managers argue that family owned businesses, tend to outperform the broader global equity market and display distinctive management styles which are attractive to long-term investors: strong values and active ownership, including a heightened long-term focus combined with succession planning.
The Family Fund is in fact a repositioning of the Pictet–Small Cap Europe fund which invested around 25% of its portfolio in family businesses but the managers say the Pictet-Family Fund now has a stronger focus and is no longer constrained regionally or by market cap size. The fund is domiciled in Luxembourg, is UCITS compliant and is managed in Geneva by co-fund managers Alain Caffort and Cyril Benier. The annual management charge is 0.08% and ongoing charge figure (OCF) is 1.06%.
Pictet say successful family firms have four key dynamics at play in common:
(-) Entrepreneurship – often through distinctive innovation or disruption;
(-) Careful stewardship – understood as the desire to invest now for the success of the next generation – and, no generation wishes to be the one who gambled the family silver;
(-) Socio-emotional wealth “skin in the game” – the company is a reflection of them and the family reputation.
Consequently, they are engaged, active owners and this can be seen through their financial commitment; and
(-) Longer-term perspective – given family owners often have the vast amount of their wealth tied up in the business, how they act and invest is very different to shareholder led firms. They typically reinvest for growth, while maintaining stricter financial discipline.
Alain Caffort said: “There is a strong cultural fit between Pictet and the strategy. Not only is the Pictet Group a family owned business, but the culture of our firm represents many of the characteristics that we look for in companies when investing.
“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. The Pictet-Family fund aims to fill that void.”
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