(Source : Bloomberg)
Most wealthy families tend to invest their wealth with an entrepreneurial approach. The experience, network and mentality developed while growing their historical core businesses are great skills when choosing the right investment and help it to grow over time. Often, holding companies have large stakes with board representation enabling them to influence the strategy of the company. Last but certainly not least, they provide “patient” capital. Indeed, most of the time, the aim of an investment is not to make short term profit but to develop and built, without the pressure from volatile investors like hedge fund activists.
The essence of holding companies, excluding the mono-holdings, is to diversify. Though often concentrated portfolios, holding companies tend to invest across sectors and geographies. This provides investors with a natural protection from the effects of portfolio diversification. More and more, holdings start to invest into the private equity space, offering to investors an access to an often hard to enter part of the financial spectrum, while keeping the liquidity of a listed stock.
A Recent Softer Performance
Over the last years, we noticed a contraction to the outperformance of the holdings against the broader equity market. The reason is twofold: first, most holdings companies allocate their capital to reasonably priced companies (aka value stocks) and second, there is an underrepresentation of American companies as investees (moreover, not many listed American holdings do exist). We have noticed listed holding companies rarely have stakes in index heavyweights technology companies (FAANGs and alike), by far the largest contributors to the recent equity bull market. We believe this trend can be reversed as the average valuation of the investee companies as well as the holding companies themselves are often much less sensitive to interest rates changes. We also believe their business models are more resilient in the context of political turbulences, certainly not a bad idea for the foreseeable future.