HNWIs Increasing Family Investments

High-net-worth-individuals are increasingly diverting investments into family businesses, according to the results of a survey by KPMG.

The trend is seeing a drop in the amount of funding family firms are raising from traditional banks and financial institutions. According to the findings of the report, 36% of family businesses have had recent problems accessing bank loans to finance their projects, fuelling a hunt for alternative investment.

The global survey by the professional services firm also found:

• 44% of HNWIs have previously invested in family businesses
• 95% have had a positive experience
• 76% hold a majority stake in the business
• 60% are actively looking for investments
• A ‘reasonable’ risk and return structure is sought
• Investments are taking a long-term capital appreciation view
• 58% of family businesses are seeking external financing

A Challenging Environment for Family Businesses

The survey, which asked the opinion of 125 family businesses showed that increasing numbers of them are facing a challenging environment to source adequate financing. The survey also asked 125 high profile HNWIs, asking them about their experiences with investing in family businesses and how they see the relationships working.

According to the findings, family businesses contribute over 70% of the world’s GDP. However, many of them are seeing their financing options being evermore restricted. This is risking the potential for growth, with families put off of securing offered private equity (PE) funding as demands often include selling 100% of the business to maximise exit events.

Despite this though, PE and venture capital remain the preferred route to funding.

Strategic investments from corporates, (the second preferred funding route), also see family business investment as a route to full ownership however, another reason for reticence on the part of the seeker, who want to retain control of their business and keep key information confidential.

This is seeing high-net-worth-individuals (HNWIs) take up the slack.

Global Wealth of $53 Trillion

Estimates by KPMG suggest that the top 14 million HNWIs are worth a collective wealth of $53 trillion on a global level, with their priorities often closely aligned with those of famil businesses. Many of them have direct experience in family business themselves.

Both target long-term capital appreciation as a top investment driver for example, 37% in the case of HNWIs and 23% in the case of family businesses. The route into top quality education is a factor in this decision, with the Global Head of Family Business at KPMG, Christophe Bernard saying:

“From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups.”

With their collective worth and the investment route being largely under-optimised at present, advisors could see increasing engagements to facilitate Family Office and HNWI tie-ups.