Reuters Insider - Invest in companies with a family interest - fund managers
18/09/2014 18:22
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Description: Quoted companies that retain a family interest of
20% or more outperform those that don't. José Luis
Jimenez CEO of March Gestión de Fondos and Jean
Keller of Argos IM discuss.
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Transcript (May be auto-generated)
Research out of the IE Business School in Madrid has suggested that quoted
companies that retain a family interest of 20% or more outperform those that
don't have such an interest. It's called the Family Premium. Well, Jose Luis
Jimenez is the CEO of March Gestion de Fondos, and Jean Keller is CEO of Argos
Investment Management - they're both managers who specialize in this strategy,
and join me now. Gentlemen, many thanks for talking with Reuters. It's
fascinating this area, and I know there's been some new research done now. Does
it prove the same thing as this research 10 years ago that family interest of
20% or more outperform? I think probably there is a prejudice when you talk
about family businesses, and immediately people will have negative ideas coming
into their mind when there's a quoted family business. The example- the many bad
example come to mind where family have been disadvantages to minorities, yet the
research actually overwhelmingly proves that family have been good for quoted
business. So it's the combination of having the governance and the transparency
of a quoted business with the actual family ownership that will preserve its
"nest eggs" over many generations that has provided an advantage to
shareholders. Jose Luis, is this- as this new report comes out, is this a
theory, is this a strategy that you believe more in now? Absolutely, we have to
say we are as well a family business, and we have been investing in all the
family businesses for many years. So the evidence I would say is there. What do
you think of disadvantages that result then in these prejudices? Well, in some
cases, family business can work bad as it happened with nonfamily business. In
most of the cases, it is about what's the next generation, either they will
continue with the business or not. But when something goes wrong with a family
business, I don't know why it's always on the press, and this is something that
probably called the attention. But we want to point it out it's probably the
other way around - family businesses are much better than nonfamily in the long
run. First or second generation perform- which perform better? Well, we think
second generation. In fact, transgenerational businesses tend to perform better,
for precisely the reason that there is a socioeconomic value to earn a
transgenerational business. If you put all your eggs in one basket, you're going
to more likely to look at this basket very carefully as opposed to sort of just
being a shareholder on your own and earning any kind of business. It's
interesting because- and it's quite timely this. Yesterday, we were covering the
Heineken-SABMiller story. And it- speaking with our columnists here it seems to
me the conclusion they reached is that the Heineken family just do not want to
let go of this business and that's why this deal is not going to go ahead. Now,
that seems to me, for some shareholders at least, to be a negative. Yeah, I
mean, there is always going to be a tension between the short term and the long
term. Now, I'm not familiar with the specific of Heineken's stories but one has
to remember that if you do run a research- a business of the long term, you will
overtime provide more value to shareholders than if you focus on the next three
months' results. And that's typically what family businesses- quoted family
businesses have tended to do for shareholders. Now, yours is a European fund,
right? Yeah, a small cap European fund, yes. A small- small cap European fund.
How's the fund performed? It's actually performed well. The fund has done very
well over the time. As you know at Argos we are a specialist small cap managers,
so we tend to focus only on companies that has less than EUR2 billion-EUR3
billion of market cap. And the fund has a good historical track record. In fact,
the Argonaut Fund has been running since 2003 and is one of the top in its
class. So throw out two or three of your top picks, your outperformers in your
fund. Well, we have a company called Somfy.
It's a small French company. It's actually in France but it's close to Geneva.
And they are one of the world leaders in engine for blinds, and they do that
very well. And that's a very interesting area because of all the energy
efficiencies of business. And it's a business that has grown very nicely. Family
business tend to provide long term growth plans for their business in a much
more regular, less spectacular fashion which I think is good for shareholders.
And does that give the investor greater clarity? Is that why you back that
strategy? I don't know whether it's about clarity. I think it's more about
stability. Okay. I'm holding a BIC barrel. BIC is another family-owned business.
Absolutely, yes. But probably a little bit- EUR5 billion, I think is the market
cap- probably a bit too big for your fund?
It's a very big for our fund. Don't forget that the float is much smaller. The
family owns about- I forgot the exact number but 50% of the stocks. So this is
actually one of the other impact of family business is because the float is
smaller, then tend to perform more like small cap firm. Jose Luis, yours is a
global equity fund, slightly bigger cap. Yes. I mentioned Heineken. Do you
invest in Heineken? Yes, we do. You do invest in Heineken. Wal-Mart is another
one I know you look at, BMW. Are the- throw out some other names of companies
that have benefitted you think from this structure? And I'd like to get some
companies in there as well that you've had in the fund that you've pushed out
because it hasn't done well.
Probably, I can tell you a very good example with a Spanish company which now is
obviously well-known. It is GOWEX- you know, this Wi-Fi provider? Oh, yes, I do.
Yes. And we invested at the beginning because we thought that the founder was a
good person with a good vision and so on, but we realized that probably his
ambition was so far away from reality. And we decided to invest long time ago
before the crisis and so on. So sometimes, it can go wrong. We have another good
example in the Spanish case which is Pescanova - a wonderful business, not
well-managed, with a lot of trouble. And these things could happen, and they
happen in nonfamily business. But as long as you try to look for value, and
that's what we do in our Family Business Fund, most of the times you are right,
and thus, would explain the good performance of the fund. Is it - and I know it
was something that Jean has touched on - is it not difficult when you look at
the BMWs, and the Wal-Marts, and the Heinekens to try and convince investors
that family tentacles won't be all over this company in an all-controlling
fashion? I don't think so. I think investors love family business, as it happen
with most of us. I tend to ask to journalists or other people, if you had to
choose a restaurant, do you prefer a family business or a nonfamily restaurant?
And people say, "Well, I prefer the family because they have been there for 20
or 30 years." I think they are the same approach when you are investing. But
sometimes family-run restaurants don't want to change the menu.
Well- And that's a negative. Well, they change because they try to provide what
they do best. It's part of their legacy for family. If they don't do something
good enough, not good enough for themselves, they don't provide it to anyone.
We're running out of time but talk to me quickly, Jean, about some companies
that you're looking at, not in the fund yet, that you might want to invest in,
in the future. Well, I can think of a company that is unfortunately already in
the fund. But some fund like Bucher in Switzerland which is an agricultural
machinery manufacturer, they've been doing very well, they've been managing the
transition very well from generation to generation. The chairman has retired,
left the CEO position in 2001, he's retired in 2007. They've enlisted
professional management and the company is continuing to grow. I think part of
the issue is that because of all of those prejudice, because of all those
questions people tend to ask, it does create an opportunity for people who take
the time to look at those businesses. Is it getting worse or better, the
prejudices? Who knows? I mean- But for you and your job, is it- do you think
they are lessening or do you think this is getting worse? I think there's still
a lot of prejudice. I think the fact that we're talking about it and we think
about it now it demonstrate that there are still a lot of prejudice against
family quoted business, which is a great opportunity for us and for our clients.
Very good. Gentlemen, many thanks for coming in and talking with Reuters today.
That is all we have time for. My thanks to Jose Luis Jimenez of March Gestion de
Fondos and Jean Keller of Argos Investment Management. Plenty more Wealth
Strategies segments on demand on the Insider platform. I'm Axel Threlfall. This
is Reuters