Credit Suisse Research Institute has published its latest findings on the resilience of family-owned companies across a number of regions, and how they have performed against their non-family counterparts in these testing times.
The business narrative of this pandemic has been if/when staff will return to their corporate offices and, for smaller firms, whether they will survive. The response to the latter perhaps is "stop worrying."
A report this week from the Credit Suisse Research Institute describes the SME sector as being robust, especially those long-established family-owned businesses rooted in community values. (The institute is a think-tank run by Credit Suisse.)
In its report Credit Suisse Family 1000: Post the Pandemic, the firm found that family-owned businesses outperformed their non-family-owned peers in every region and sector and were remarkably resilient to COVID-19’s effects.
Using a proprietary database of more than 1,000 publicly listed family - or founder-owned companies - the Swiss wealth manager has found that since it began monitoring in 2006, the overall “Family 1000” has outperformed non-family-owned companies by an annual average of 370 basis points. Results in Asia-Pacific, excluding Japan, have seen the most impressive headway, with compound returns of more than 500 basis points a year, followed by Europe at 470 basis points. In the US, the data shows that family-owned firms, across small, medium and large categories, had delivered annual average returns of 2.6 per cent since 2006, behind Europe, at 4.7 per cent, and the global average, at 3.7 per cent. For Asia ex-Japan, the return is 5 per cent. (Some of these differences may also reflect relative differences in the share of busineses in North America and other regions that are family-owned.)
“Our research to date highlights that family-owned businesses pursue a longer-time horizon in their investment strategy, delivering more stable and superior through-cycle profitability, and ultimately driving significant excess returns for all shareholders,” the report said.
Family-run businesses, although overshadowed by large cap-listed firms that grab media attention, are the backbone of most national economies, and a macro view of how they are navigating this difficult year is a good indicator of how economies as a whole are going to emerge from the pandemic.
“We 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,” Eugène Klerk, head of global ESG research product at Credit Suisse, said.
Family-run Asian businesses dominate
As the chart above shows, around 50 per cent of companies on the database are in Asia. Across 12 markets, including Japan, APAC holds a 51 per cent share of all businesses, comprising 540 companies that contribute $5.56 trillion in the region.
Breaking this down further, there are 159 family-owned companies in China (worth $2.48 trillion); 71 in Hong Kong (worth $505.1 billion), and 111 in India that make up the top three jurisdictions and 70 per cent of APAC market share, with a combined market cap of $3.9 trillion.
Highlights In brief
Higher growth and profits
Family-owned companies typically perform 200 basis points higher than non-family-owned companies for both smaller and larger companies. They also tend to be more profitable, with superior returns seen across all regions globally.
“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,” Klerk said.