The family investment group is increasingly becoming a feature of 21st-century global capitalism. Many of them are thriving and will exert even more influence on global capital flows in the years ahead. But what makes them so special, and, indeed, successful?
Although these groups are all unique, there are three characteristics that are likely to be found in family investment groups which underpin their robustness and success. These are connections, values, and long termism. Of course, these factors in themselves won’t necessarily ensure their success, but they are to be found in all successful family investment groups. Let’s look at them in more detail.
Family investment groups, whether they are listed groups like Investor AG and Exor, or non-listed family offices, are likely to have exceptionally good connections with businesses and policy-makers around the world. In many cases these connections have been built up over many years, sometimes through many generations. These families are often very well connected not just in their home country, but around the world as well.
These connections often mean family investment groups will have the choice of some of the best investment opportunities around. And on the other side of the investment dynamic, companies looking for investors will often consider these family investment group connections a good reason to agree on a deal with them.
Family investment groups are likely to have a clear set of values. This gives them the opportunity to work with other groups with a similar set of values. Of course, values can be good and bad. And having values doesn’t necessarily make a family group a better investor. But it does give a family investment group a profile that’s different. Values can open doors and create value-based relationships.
It is an often cited feature of family businesses and family investment groups - their commitment to long-term decision making - nevertheless, it is an important factor in understanding why family investment groups often thrive. Unlike many non-family investment groups, they don’t have the pressure on exiting from their investments. They can incur the value of their investments over many years because they don’t have to pay the money out to a group of investors through a private equity fund. And family investment groups’ long-term exit strategy is a very good selling point to businesses seeking investment.
Of course, non-family backed investment groups like private equity groups often have many connections and can use these to their advantage. They may also have specialist investment knowledge and deal-making skills not necessarily found in family investment groups. Nevertheless, non-family backed groups are unlikely to benefit from the values of a family group and are still driven by short-term exit strategies, albeit with less aggression than they did before the financial crisis of 2008.
There are also the traditional caveats with family business-type structures: lack of professionalism, the hiring of weak management, and some families aren’t at the top of their game. Many face at least one of these problems.
But the better family investment groups have professionalised, hired the right people, and are at the top of their game. Indeed, they have in many cases acquired the skills and the professionalism of non-family private equity groups. And combining this with the three factors - connections, values, and long-termism - family investment groups offer real strength in the 21st-century investment environment.
Morten Bennedsen is The André and Rosalie Hoffmann Chaired Professor of Family Enterprise at the Wendel Centre for Family Enterprise at INSEAD in France