The fund invests in family owned businesses, which 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.
According to a variety of studies2, family-owned businesses are typically more profitable and outperform their non-family owned peers. Successful firms in this space 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.
The fund is managed by a team based in Geneva, co-managed by Alain Caffort and Cyril Benier. A family business is defined as a listed company where a person, often the founder, or a family hold a minimum of 30% of voting rights. This provides an investment universe of around 500 companies globally.
“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 per cent 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” comments Alain Caffort, Senior Investment Manager, Pictet-Family fund.
1Pictet-Family fund is a repositioning of Pictet–Small Cap Europe with a focus on family run businesses globally across the broad market. Pictet-Small Cap Europe did invest in family businesses previously (circa 25 per cent of the portfolio at 31 Dec 2019) however, Pictet-Family now has a stronger focus and is no longer constrained regionally or by market cap size.
2Source: Christian Andres - Large Shareholders & firm performance, 2008. Ronald. C Anderson and David M. Reeb -Founding Family and Ownership and firm performance evidence from the S&P 500, Journal of Finance, June 2003. Credit Suisse Research Institute -The CS Family 1000, 2018. Harvard Business Review / École Polytechnique – what you can learn from family business, 2012. Economist Executive Education – why family businesses outperform others. OECD Observer – When corporate governance is a family affair.