New BL-European Family Businesses fund
Family businesses make up 70% - 80% of European companies and employ almost half of the working population. Their well-known competitive advantages include a strong corporate culture, fast decision-making and resistance to passing trends.
As Banque de Luxembourg launches its BL-European Family Businesses fund, fund manager Ivan Bouillot explains why he decided to focus on this theme.
What sets family businesses apart from other listed companies?
Family businesses have the benefit of a stable, long-term reference shareholder who shares the business's interests. As their corporate culture is founded on specific family and social values, the family's principles are reflected in the business. This company profile favours consistent performance over maximised short-term profits. As well as this, the founding family's name is often associated with the company's products and services, so they have a particular interest in growing and developing the brand.
Where do family businesses get their ability to combine continuity with agility?
A family business is naturally driven by the goal of passing on a sold, enduring business project to future generations. It is therefore developed and managed with a view to resilience and continuity over time, and its investment decisions aim to strengthen the company in the long term. Family businesses often focus on specific expertise. They develop a approach that is cautious, yet committed to growth, and that tends to preserve their value. Their engagement and passion for the business result in fast decision making. Human capital is also a major factor. Staff turnover is low in family businesses and their commitment drives productivity, flexibility and responsiveness.
Do family businesses have their own distinct financing strategy?
Family businesses are sensitive to the preservation of family independence and company flexibility, as well as the risk of dilution of capital. Therefore, maintaining their financial autonomy is a priority. They prefer self-financing and debts are low, which helps them to maintain a healthy balance sheet. They often avoid uncertain financial situations in order to protect the family's wealth.
Does this have implications for capital allocation?
The focus is on growing and strengthening the core business. External expansion is carried out through very selective choice of acquisitions, applying strict rules for valuation and analysis of potential synergies.
Overall, I would say that family businesses are cautious in their approach but committed to growth, have low debts and prioritise resilience in periods of economic slowdown over expansion at any price. Their strategy for long-term preservation of their wealth often results in good operating performance and faster growth in earnings compared to the average listed company, and this is also reflected in their stock performance.
What criteria do you use to define the investment universe for your funds?
The family businesses selected are European companies in which at least 25% of the shares are owned by the person or family that founded the company or acquired the company's capital. The family should not be involved merely on a passive basis but should be committed at the level of company management, as chief executives or board members. There must also be a strong family and social culture within the business.
Once the family aspect is established, I apply Banque de Luxembourg's own business approach which treats every investment as if we were taking a long-term stake in the selected company. The final portfolio is made up of around 60 companies which must meet strict criteria:
- a competitive advantage
- solid fundamentals
- an appropriate business strategy
- an attractive valuation
Watch the video to learn about Banque de Luxembourg's investment strategy
In fact, the companies we invest in apply a strategy similar to our own investment approach, which favours caution and a long-term horizon.