Family-owned companies in my portfolio

I prefer investing in family-owned companies compared to corporations run by outside managers. It is comforting to know that the people running the company also own it for a large part. 

Pros of family-owned companies

• Skin in the game. The owner-family shares the same risks and rewards as outside investors.
• They typically run their business with a long-term view.
• They take less risk and keep leverage low.
• With significant family shareholdings or even a majority vote, they can withstand pressure from other shareholders for quick, non-sustainable profits.
• Owner-operators usually have more passion for the business than outsiders.
• The owner families develop deep industrial know-how in their area of business.
• Most owner-operators do not reward themselves with extravagant pay packages.
• They do more rational mergers and acquisitions.
• There is evidence that family-owned businesses outperform the overall stock markets.

For more details on these pros, I recommend the article Why Family Business Stocks Are Better – Why They Outperform (Owner-Operated Businesses Have Skin In The Game) posted on April 26, 2022, by Oddmund Groette. Unfortunately, this article does not address the disadvantages of family-owned companies. Let me try to make that list from my own observations.

Cons of family-owned companies

• Conflicts can arise within the owning family, sometimes crippling the business.
• The next generation of the family has little entrepreneurial talent. 
• The next generation is not close to politicians or other businesspeople who were critical to the company's success.
• Non-family managers and workers within the company may not be loyal to the new generation.
• Non-family managers may be better qualified for positions given to family members through nepotism, leading to tensions.
• The owner-operator family treats outside investors poorly by siphoning off money or assets through Related Party Transactions or excessive management compensation.
• There may be different classes of shares, limiting even a little bit of influence and feedback from outside investors.
• The family may attempt to de-list the share for a lowball offer at a time when the valuation of the company is low.

These red flags can sometimes be detected by careful observation of the developments around the company. As outside minority shareholders, we can at least attempt to flag possible corporate governance issues before it's too late. As a starting point for such an exercise, I went through all my current holdings to identify the family-owned companies in my portfolio.

As you can see below, more than half of my portfolio holdings fit the definition of a family-owned company. When I mention the name of one controlling shareholder, I consider him or her as the family behind the business. Often, it is also the founder. Where I put 'family' behind a name, more members of the family seem to be actively involved in the business. 

The ownership percentages mentioned are rounded off and may have changed somewhat since the last publication. This share count is a very rough indication in the first place since a portion of shares does not always represent the same portion of voting rights: voting rights can be split off, or there are different share classes. The main goal is to identify the key person or family behind the company and to measure their influence to some extent. Obviously, 60% ownership yields a lot more power than 11%.

Exotic Food PCL     60%    Jantarach family

VTech Holdings Ltd       37%    Allan WONG Chi Yun

QAF Ltd         69%    Andree Halim (Liem)

United Plantation Berhad      50%    Bek-Nielsen family

Frasers Centrepoint Trust      41%    Sirivadhanabhakdi family

Fraser and Neave Ltd           88%    Sirivadhanabhakdi family

Frasers Logistics & Commercial Trust   21%    Sirivadhanabhakdi family

Sunway Real Estate Investment Trust   41%    Cheah family

Saha Pathana Inter-Holding PCL    17%    Chokwatana family

Delfi Ltd                52%    Chuang family

Ho Bee Land Ltd       76% Dr Chua Thian Poh

InNature Bhd         75%    Foong & Cheah family

Able Global Bhd            29%    Goh family

PT Tempo Scan Pacific Tbk   82%    Handojo Selamet Muljadi

DFI Retail Group Holdings Ltd       78%    Keswick family

LG H&H       34%    Koo family

Vinda International Holdings Ltd  22%    Li Chao Wang

CK Hutchison Holdings Ltd            30%    Li family

CK Infrastructure Holdings Ltd        30%    Li family

Hutchison Port Holdings Trust          30%    Li family

Want Want China Holdings Ltd    52% Mr Tsai Eng-Meng

PT Ultrajaya Milk Industry & Trading Co Tbk    79%    Prawirawidjaja family

JDE Peets NV            55%    Reimann family

Yihai International Holdings Ltd    53%    Shi/Lee and Shu/Zhang families

Hai-O Enterprise Bhd          22%    Tan family

Thai Vegetable Oil PCL      49%    Vitayatanagorn family

Associated British Foods PLC   58%    Weston family

Boustead Singapore Ltd      43%    Wong family

Spritzer Bhd       45%    Y Bhg Dato’ Lim A Heng

Natural Food International Holding Ltd      42%    Zhang family

PT Uni-Charm Indonesia Tbk     21%    Widjaja family

AIMS APAC REIT     15%    George Wang, Chan Wai Kheong

ESR LOGOS REIT       6%    Mr. Tong Jinquan

With this list completed, a more significant task will now start. In the coming articles, I will go through these names and determine if there are any corporate governance concerns. In the next post, I will start with the REITs that have family involvement.

Disclosure: I hold all the stocks mentioned in this post at the time of writing.