Entrepreneurial families as investors

Private equity is beco­ming incre­asingly important as an asset class for entre­pre­neu­rial fami­lies. Taking into account the corre­spon­ding risk, limi­ted liqui­dity and also tax and regu­la­tory chal­lenges, above-average risk-adjus­ted return oppor­tu­ni­ties can arise.

Throug­hout the finan­cial crisis, private equity has proven to be a valuable buil­ding block within the port­fo­lio context. In our view, the main reason for this valuable contri­bu­tion is that such forms of invest­ment derive their returns from sources that are gene­rally not available in the tradi­tio­nal, liquid capi­tal market. The sustainable added value that results from active entrepreneurial

acti­vity in the private equity sector enables the desi­red impro­ve­ment in the stabi­lity of perfor­mance and thus, in our opinion, under­lines the attrac­ti­ve­ness of these asset classes.

Many entre­pre­neu­rial fami­lies want to pass on their ‘entre­pre­neur­ship’ and act as busi­ness angels or fund advi­sors. They have an entre­pre­neu­rial under­stan­ding, the right compe­ten­cies and networks combi­ned with the will to use short decis­ion-making paths for the success of the compa­nies. Most of the time, invest­ments are made in other compa­nies via direct holdings, prefer­a­bly in family-owned compa­nies. Through the commit­ment to another family busi­ness, iden­tity of inte­rest between the fami­lies is achie­ved, combi­ned with the preser­va­tion of indi­rect influence on the inves­ted assets and also the possi­bi­lity of further entre­pre­neu­rial invol­vement. The future sale or exit plays only a subor­di­nate role; what counts is the very long-term orien­ta­tion of family busi­nesses and their owners.

The aim should be to build up and align this asset class within the over­all stra­te­gic asset allo­ca­tion in such a way that the fami­lies can bene­fit from the econo­mic deve­lo­p­ment, parti­cu­larly in the SME sector, and the invest­ment oppor­tu­ni­ties that are opening up.

On the one hand, direct invest­ments in compa­nies, whether listed or not, offer corre­spon­ding poten­tial for value enhance­ment, but on the other hand they also entail risks, some of which are very speci­fic. For this reason, it is essen­tial to diver­sify invest­ments and spread them across diffe­rent company sizes, indus­tries, regi­ons, etc. In addi­tion, the compre­hen­si­bi­lity of the busi­ness model, products and services, finan­cial situa­tion, manage­ment and orga­niza­tio­nal struc­tures are important crite­ria. When deve­lo­ping this stra­tegy, or target allo­ca­tion, entre­pre­neu­rial fami­lies should defi­ni­tely engage an exter­nal part­ner, e.g. a family office, as a spar­ring partner.