Continental Europe Family Leaders

Family businesses – a long-term vision 

 

Family-owned companies hold several competitive advantages embedded in their long-term vision and have shown historical outperformance potential within the broader equity universe.1 Our Continental Europe Family Leaders strategy seeks to capture these opportunities through a high-conviction portfolio of high-quality, family-owned European small companies. 

1 Source: BulwarkBay . Family leaders universe compared to MSCI Europe ex-UK Small Caps, 31 December 2007 – 31 December 2019. Past performance of a benchmark is not a guarantee of future results. No benchmark is directly comparable to the strategy. There can be no assurance that the strategy’s investment objective will be achieved or that there will be a return on capital or that a substantial loss will not be incurred.

60 -90%

of EU companies are family businesses

70 -95%

of all business worldwide

40 -50%

 of EU private-sector jobs

Source: European Family Businesses.

2 U.S. Health Care from a Global Perspective, 2022: Accelerating Spending, Worsening Outcomes.

keeping it in the family.

Family businesses and entrepreneurs make up a sizable proportion of our economies and are closely associated with a specific set of desirable traits that hold the potential for sustainable, long-term returns. Typically small-cap enterprises, they show superior economic returns, a long-term strategy focused on navigating powerful mega-trends and challenges, and shareholder commitment.

We define a family business where the founder(s) or heirs:

  • Are the largest shareholder
  • Own at least 10% of the capital
  • Are actively involved in the operations of the business

family businesses – four alpha-generating features.

We have identified four specific values and attributes that are conducive to long-term value creation and performance by family businesses:

  • True long-term orientation, strategic vision and stability. Family businesses are more likely to prioritise passing down wealth to the next generation, which can translate into a more stable, long-term vision than that of other companies
  • Higher economic value creation. Family businesses are often driven by a ‘skin-in-the-game’ mentality. They tend to focus on organic growth and long-term value creation instead of quarterly reporting
  • Leaders in attractive trends. Achieving inter-generational wealth transfer requires them to be more attuned to looming structural shifts and growth opportunities
  • An inherent durability. Family companies have a stakeholder alignment to uphold. The pursuit of inter-generational value creation promotes stewardship in the interests of future stakeholders

adaptability and durability.

Family companies have a larger reputation at stake and stakeholder alignment to uphold – a natural incentive to pursue sustainable business models.

Here are three examples:

  • Sustainable materials: Cork is naturally renewable and has a low environmental impact. Under the majority ownership of a family, a Portuguese cork manufacturer has leapt forward to a leadership position through differentiation and innovation. For instance, its technical cork stoppers have gained market share as a substitute for plastic stoppers.
  • Sustainable urban systems: The green building market worldwide is expected to grow by USD 187 billion over the next seven years.1 The European leader in this niche market is a founder-managed business that focuses on ecological building materials derived from wood. The company has found success through a strategy of vertical integration.
  • Sustainable supply chains: Industrial robotics and the widespread adoption of automation are shaping our future. Machine-vision solutions, both hardware and software, help improve efficiencies. In other words, they are the ‘smart eye’ of robots. The founder of one of the top three producers of these technologies continues to act as chairman of the board and encourages growth-through-innovation mindset.

1 Source: Even with Covid-19, Green Buildings Materials Market Expected to Grow by $187 Billion.

For illustrative purposes only. There can be no assurance that the investment objective will be achieved or that there will be a return on capital or that a substantial loss will not be incurred.

why us?

As part of a multi-generation family business founded in 1796, we understand and can recognise genuine vision and conviction in other family-owned companies. We believe this yields advantageous insights into their prospects for long-term success. We understand and recognise genuine vision and conviction in other family-owned companies.

On top of that, our commitment to sustainability provides an additional common thread.

  • We understand the family business mindset of long-term value creation, adaptability and durability
  • 'Skin-in-the-game' commitment is essential to these businesses, as it is to ours
  • We believe this yields advantageous insights into their prospects for long-term success.
  • The pursuit of transgenerational value creation puts stewardship for future stakeholders in greater focus for family businesses.

our strategy.

Our Continental Europe Family Leaders strategy seeks to benefit from the potential for future returns from family-owned companies, by investing in those businesses exhibiting the key common characteristics identified by our research:  

  1. Have embedded long-term attributes for success
  2. Have an inbuilt, natural focus on value economic creation, due to a ‘skin-in-the-game mindset’
  3. Are grasping megatrends, focusing on organic growth
  4. Are prone to sustainability sensitivity, due to the critical importance of reputation

We seek to capture these opportunities through in-depth, disciplined and forward-looking “bottom-up” research which identifies companies within the European small caps universe with strong and durable business and financial models and generating Excess Economic Return (EER), while avoiding weak business practices and models (ESG).  In building a portfolio of family leaders, we aim to deliver a low-turnover, high-conviction portfolio of 40 to 65 companies with growth, quality, resilience and solid ‘family’ characteristics.

**Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

investment philosophy and process.

At BulwarkBay Investment Managers, our investment process combined with rigorous fundamental research helps us identify family businesses with strong and durable business and financial models and generating excess economic returns.

Our disciplined approach facilitates strict risk management by ensuring transparency and accountability at every step of the process.

Source: BulwarkBay analysis. For illustrative purposes only. 

investment team.

LOcom_AuthorsAM-Nouhaud.png

Ingrid Nouhaud, CFA
Portfolio Manager
LOcom-AuthorsAM-Menges.png

Pascal Menges
Head of Investment Process and Equities Research

contact us.

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Past performance is not a guarantee of future results. If the funds are denominated in a currency other than that in which the majority of the investor's assets are held, the investor should be aware that changes in rates of exchange may affect the value of the funds' underlying assets. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
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important information.

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