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September 30, 2011updated 04 Apr 2017 3:48pm

Family businesses key pillars of Asian growth

Family businesses have been a crucial source of private wealth creation in Asia in the past decade, new Credit Suisse research confirms. An analysis of 3,568 publicly listed Asian family businesses found that they delivered 261% cumulative total return and a compound annual growth rate of 13.7% during 2000-2010, outperforming local benchmarks in seven out of 10 Asian markets. The study showed family businesses accounted for about 50% of all listed companies, 32% of total market capitalisation, as well as 57% and 32% of all listed companies employees in South Asia and North Asia respectively.

By Tina Leung

Family businesses have been a crucial source of private wealth creation in Asia in the past decade, new Credit Suisse research confirms.

An analysis of 3,568 publicly listed Asian family businesses found that they delivered 261% cumulative total return and a compound annual growth rate of 13.7% during 2000-2010, outperforming local benchmarks in seven out of 10 Asian markets.

The study showed family businesses accounted for about 50% of all listed companies, 32% of total market capitalisation, as well as 57% and 32% of all listed companies’ employees in South Asia and North Asia respectively.

 

Bank lending major source of business funding

The results underline how providing financing and services to family businesses must form a key strut of private banks’ offerings in Asia.

“Across Asia, family businesses are generally less able, or willing, to issue bonds than nonfamily businesses, relying more on bank lending to finance their business activities,” Credit Suisse’s study said.

Countries surveyed included China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

In particular, family businesses in China, Malaysia, Singapore and South Korea strongly outperformed their local benchmarks in total return during the period.

Family businesses were defined as family-controlled companies (or an individual of the family) that held at least 20% of the cash flow rights in the firm either directly, or indirectly, through holdings in private or public entities.

 

Economic importance of South Asian tigers

The majority of the family businesses surveyed were in South Asia (65%) compared with 37% in North Asia.

India had the largest number of family businesses (67%) while Chinese family businesses accounted for the least (13%) due to its state-owned economic structure.

In particular, family businesses in Singapore were found to have played a prominent role in the domestic economy and capital market.

As of the end of 2010, family businesses accounted for 63% of listed companies in Singapore, with a total market capitalisation of 54% and 140% of nominal GDP.

Speaking to Banking & Payments Asia, Marcel Kreis head of private banking for Asia-Pacific at Credit Suisse, said that as family businesses grow, there is a shift towards using family offices for more professional investment.

Kreis said: “We are seeing more and more clients that run family businesses express a desire to have the proceeds of their activities more professionally managed. There, we can play a very important role, and that business is of growing interest to us.”

 

Methodology

The study drew upon primary data from 3,568 publicly listed family businesses in Asia with market capitalisation of more than $50m.

The financial performance of 1,279 publicly listed family businesses with market capitalisation of over $500m was also evaluated.

 

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