Family focus powers boutique star’s outperformance

ZURICH: The ‘skin in the game’ of family-owned firms makes them statistically a better bet than companies without a personal attachment to future growth prospects, according to European equity star Birgitte Olsen.

The Euro Stars AAA-rated manager, who runs the Luxembourg-domiciled Bellevue BB Entrepreneur Europe fund, said empirical evidence suggests family-owned - or ‘entrepreneurial’ – companies have better growth and outperformance in the long-run.

‘This means it is important to look for a company where there is a majority shareholder, someone who has skin in the game, because they are going to be driving the long-term future of that company,’ she told Citywire Global.

Olsen, who is also head of European equities at Zurich-based boutique Bellevue Asset Management, said academic studies into family-owned businesses has also shown top level management last a lot longer at the head of the company than they do in their competitors.

‘The role of management is exceptionally important but the turnover is getting higher and higher, as CEO tenures are getting shorter. In non-family-owned firms, it has fallen from around 8-10 years to between three-and-five,’ she said.

‘But then if you look at the plans these companies are discussing, their strategies for growth and so on, these are all over much longer horizons. So you have 10 year plans being put in place by management who leave within five years.’

Uncovering entrepreneurs

Olsen and her team assess an investible universe of 3,500 companies which is then vetted for companies where there is a single stakeholder with voting rights greater than 20% and a market cap of over €200 million.

This leaves a pool of around 600 companies from which Olsen invests in the top 30-40 ideas on a bottom-up basis. Her current largest positions are in German software firm SAP AG (4.1%), Austrian industrials company Andritz (3.8%) and Swiss chemicals producer Sika (3.7%).

Pointing to one stock example, Olsen pinpoints Swatch – a 3.4% position in the fund – as an example of how succession planning and family management are an attractive long-term driver for investors.

‘If you look at Swatch they are still very much run by the Hayek family at board level. The father passed away but they had already handed the CEO role to his son and his daughter is chairman, so the vision is still there and that is important because the Hayek’s made it into what it is today.’

Around 75% of the fund is invested in single-family or small group-led organisations, while the remaining 25% is made up of private equity-led or financial firms with a major stakeholder position in a company. However, Olsen remains cautious on the latter group.

‘One thing where we would be cautious is where we find the majority shareholder is an activist or professional investor because they are just looking for their exit point and they don’t want to keep it up for the long term.’

In the three years to the end of December 2012, the Bellevue BB Entrepreneur Europe fund has returned 49.07%. This compares to its Citywire benchmark, the FTSE World Europe TR, rose 21.37% over the same period.