Strategy
Family Businesses Outperform The Benchmark – Société Générale
Family-owned businesses have far outperformed the benchmark over the last five years, due to their high corporate standards, according to new research by Société Générale Private Banking Equity Research.
Between the two crises, the 2007 – 2008 subprime crisis and the 2011 European and American sovereign debt crisis, family businesses outperformed, according to research by the French bank.
Wealth managers have been targeting family-run firms as an important client channel. For example, such businesses sometimes create family offices to protect the wealth of a dynasty.
The bank compared an equally weighted family-owned-businesses portfolio with the global index (MSCI AC World). The index is composed of all the family owned businesses covered by the SGPB Equity Research Team regardless of their current recommendations. Between March 7 2006 and October 3 2011, the generated index showed a performance of 16.95 per cent while the MSCI Index showed a performance of -3.32 per cent.
“Because of uncertainties, we observe massive market sell-offs before coming back to a cautious stance very often characterised by a return to fundamentals and stock- picking. Family businesses, with their high corporate standards, are chosen as a safe way back on markets,” said the report.
“As the family tries to keep control over the firm, its members cannot issue shares when in need of liquidity for that it would dilute the family stake and allow competitors to target them. Most family firms have agreements shaping the do’s and don'ts among family members. These agreements very often regulate the exchange of securities held by family members. These protective measures are indeed good anti-dilution systems,” said the report.
Some of the 43 family-owned businesses in SocGen's portfolio include American Movil, Microsoft, Rusal, L'Oreal, Reliance, Bourbon and Orascom. It has a "buy" rating on 20 of them.
SocGen defines a family business as one where the family own 15 per cent of the voting rights, has a family member in a managing position and a family member on the board of directors.