Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 374

Family businesses show resilience through pandemic

Our research highlights that family/founder-owned businesses pursue a longer time horizon in their investment strategy, delivering more stable and superior through-cycle profitability, and ultimately driving significant excess returns for all shareholders.

Using a proprietary ‘Family 1000’ database of more than 1,000 publicly-listed family or founder-owned companies, Credit Suisse has found that since 2006, the overall ‘Family 1000’ universe has outperformed non-family-owned companies by an annual average of 3.7%. Asia Pacific (APAC) ex-Japan has seen the most pronounced effect, with compound excess returns of more than 5% per annum, followed by Europe, at 4.7% basis points.

Within APAC, Australia has the highest excess return.

APAC family-owned companies continue to dominate the universe

The report covered 12 markets in APAC including Japan that continue to dominate and represent a 51% share of the universe, with a total of 540 companies and a market capitalisation of over USD5.56 trillion.

The universe includes six Australian family-owned companies, with a total market capitalisation of USD63.3 billion. They are Fortescue Metals Group, Crown Resorts, TPG Telecom, 7 Group Holdings, Flight Centre and Wisetech Global. 

Within the region, China, India and Hong Kong dominate. These three jurisdictions combined comprise 63% of the APAC universe of the CSRI’s database, with a combined market capitalisation of USD3.9 trillion (or 70%) of the market share of the APAC universe.

Source Figures 1–2: Credit Suisse Research, Thomson Reuters Datastream

The family alpha is strongest in Australia, with an annual average outperformance of 23% since 2006, compared to 12.0% by their Chinese peers and 9% by their Japanese peers.

However, the universe of Australian and Japanese family-owned companies makes up only a small portion of the overall universe.

Family alpha factor during the COVID-19 pandemic

The COVID-19 pandemic has had a significant impact on equity market returns and volatility this year. Family-owned companies tend to have above-average defensive characteristics that allow them to perform well, particularly during periods of market stress.

Return data for the first six months of this year supports that view, given an overall outperformance of around 3% relative to non-family-owned companies. This outperformance was strongest in Europe and APAC ex-Japan, at 6.2% and 5.1% respectively. Family-owned companies in Japan outperformed their non-family-owned peers by 30.1% during this period.

Source: Credit Suisse Research, Thomson Reuters Datastream

Key findings on family-owned companies

Higher growth and profits – The analysis suggests that, since 2006, revenue growth generated by family-owned companies has been more than 2% higher than that of non-family-owned companies for both smaller and larger companies. At the same time, the analysis also suggests that family-owned companies tend to be more profitable. These superior returns are observed across all regions globally.

Perform better on ESG scores – Family-owned companies on average tend to have slightly better environmental, social and governance (ESG) scores than non-family-owned companies. This overall superior performance, which has strengthened over the past four years, is mostly led by higher environmental and social scores as family-owned companies appear to lag their non-family-owned peers in terms of governance. From a regional perspective, European family-owned companies have the highest ESG scores. Family-owned companies in APAC ex-Japan are scoring better than those located in the US and their scores are rapidly converging with those generated by their European counterparts.

Older family-owned companies have better ESG scores than younger firms – This performance is seen across all three ESG areas. Perhaps the fact that older family-owned companies have more established business processes in place allows them to incorporate or focus on areas of their business that are not directly related to their production processes, but that are relevant in terms of maintaining overall business sustainability.

COVID-19 impact – In order to better understand the ESG characteristics of family-owned companies, a survey of more than 200 companies was conducted. The companies were asked how much of a concern COVID-19 is to them going forward. Despite the impact on revenue growth this year, it seems that the family-owned companies surveyed view COVID-19 as slightly less of a concern to their firm’s prospects than non-family-owned companies. Family-owned companies have also resorted less to furloughing their staff than non-family-owned companies (46% versus 55%). Among family-owned companies, support programs have been set up most often in APAC Ex-Japan rather than in Europe or the US. This might reflect a greater availability of government-sponsored support programs in these regions.

Social impact – The survey showed that while family-owned companies have focused more on social policies since the outbreak of the COVID-19 pandemic, they seem to lag non-family-owned peers on several ESG-related factors, most noticeably human rights and modern slavery-related policies. Family-owned companies on average have less-diverse management boards, fewer of them have support groups for the lesbian, gay, bisexual and trans (LGBT) and black, Asian and minority ethnic (BAME) communities, or have made public statements concerning respect for human rights or the related United Nation principles.

The largest 25 family companies in the database are:

Andrew McAuley is Chief Investment Officer for Credit Suisse Australia Private Banking. This article is general information and does not consider the circumstances of any investor.

A copy of the full report can be found here.

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates

Strategy

$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Strategy

Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.