Family-owned companies outperform: Credit Suisse study

FAMILY-owned companies outperformed their non-family-owned peers both in the short and long term, and are also proving more resilient amid the current Covid crisis, a study by Credit Suisse Research Institute has found.

The study, Credit Suisse Family 1000: Post the Pandemic found that the Family 1000 universe of listed companies generated an average annual outperformance of about 370 basis points since 2006.

The biggest outperformance is in the Asia Pacific ex-Japan region where family-owned companies generated compound excess returns of more than 500 basis points per annum. This is followed by Europe at 470 basis points.

Family 1000 comprises over 1,000 publicy listed family or founder-owned companies. Asia Pacific ex-Japan accounts for of 51 per cent of this universe, with a total of 540 companies with a market capitalisation of over US$5.56 trillion. The universe includes 14 Singapore family-owned companies with a total market cap of US$76.3 billion. Europe accounts for 25 per cent, and North America 14 per cent.

Nearly half of the companies in the Family 1000 have a market cap of less than US$3 billion, while 30 per cent have a market cap of US$7 billion or more.

The family alpha is strongest in Australia with an average annual outperformance of 23 per cent, compared to Chinese companies with 12 per cent and 8 per cent by Japanese companies. Singapore companies' outperformance came to 4 per cent.

A statement by Credit Suisse said that the overall impact of Australian and Japanese family-owned companies is however reduced as they comprise just a small portion of the overall universe.

Eugene Klerk, Credit Suisse head of global ESG research product, said: "When talking to investors about family-owned companies, we often hear that they outperform because of a perceived longer term investment focus compared to non-family-owned companies. Our analysis suggests that this is indeed the case.

"This year with the exceptional circumstances of a global pandemic, we delved deeper into our analysis and found that the traditionally more conservative financial model of family-owned companies built on lower leverage and stronger cash flow generation has proven to be an asset. They have notably relied less on government employment support to furlough their workforce, implicitly reflecting their own social responsibilities."

Here are some of the study's key findings:

In terms of Covid's longer term impact, only 40 per cent of family-owned companies expect revenues and profitability to return to pre-Covid levels within the next 12 months.

The survey suggested that family-owned companies were more likely to restructure existing business, whereas non-family-owned companies would diversify into new products or services. Both groups, however, believe that the way they operate their businesses is likely to change - that is, companies are "likely" or "very likely" to shift to a temporary, flexible work force rather than full-time employees in the post-Covid world.

Family-owned companies on average also have less diverse management boards. Fewer also have support groups for the LGBT (lesbian, gay, bisexual and trans, and black, Asian and minority ethnic communities, for instance.