Top investor expresses concern about investing in family businesses

A top US investor has expressed doubt at a conference in New York about investing in listed family businesses because of concerns about nepotism.

Christopher Davis, a portfolio manager and head of Davis Advisors, told the Ben Graham Value Conference in New York City, as reported by Enterprising Reporter, that family-controlled firms can “become (the) employer of the last resort for people with the same last name.”

Davis was speaking on a panel with two hedge fund managers on investing in family controlled companies. Nepotism and now it could hurt the performance of family businesses was a problem the panel saw when investing in the sector. The practice could lead investors to think twice before investing in listed family businesses.

Davis knows a thing or two about investing, but also about family businesses. His father, Selby Davis founded the eponymous investment group in 1969 he now runs. Selby is himself the son of Shelby Cullom Davis, a legendary 20th-century investor, who famously grew an initial investment of $100,000 in stocks in the late 1940s to be worth $800 million by the time of his retirement in the early 1990s.

Big adherers of value and long-term investing, Davis Advisors most famous fund is the large cap value portfolio. From the beginning of 1979 up until the end of March 2017, the fund has delivered an annual average rate of return of 14.3%.

The fund, which currently comprises 37 US listed businesses, is almost entirely comprised of non-family controlled businesses. The exceptions are the Loews Corporation, controlled by the Tisch family, and Berkshire Hathaway, which employs Warren Buffett’s son, Howard, as a director.