What opportunities does partnering with family-controlled businesses present to institutional investors?
Family-controlled businesses, especially multi-generational ones, are recognised as best-in-class operators, with deep knowledge of their business and markets, and long-term investment horizons. Institutional investors can benefit from those distinctive features to create an effective strategy for deploying long-term assets.
These businesses have recurring traits, such as strong governance, stable shareholders and long-term value creation strategies that resonate with institutional investors, especially long-term focused investors like CPP Investments, creating mutually beneficial partnerships, where family-controlled businesses contribute their operational and market expertise, and investors contribute with top-notch governance, decades of investment expertise, and a global business perspective. By creating these partnerships, investors benefit from access to the best assets in the region and can create a scalable investment platform leveraging the partner’s operational excellence while contributing their investment expertise.
What operational knowledge is brought to the table when investing alongside family-run firms?
Multi-generational family businesses build companies and assets to last, and usually resist short-termism, which can translate into greater fixed investment and higher R&D expenditures, even during a crisis, as these firms tend to pursue long-term strategies.
These firms are among the top global operators, with an appetite for smart risk-taking, a strong business focus and determination. Since we are not operators, and don’t aspire to be, we partner with best-in-class operators, providing long-term capital and investment expertise, as well as advice and best practices from our global portfolio.
What’s the key to building collaborative relationships with family-owned firms?
It is important to bring more to the table than just money. Be clear what value you bring to the business, such as a shared emphasis on governance, investment and industry expertise, global experience in the relevant sectors, and long-term commitment. Family-led enterprises are more willing to do business with long-term investors as both share multi-generational horizons, not only six to 10 years.
Since these relationships can last decades, it is essential to focus on the people you will be partnering with rather than on the individual transaction. It is an approach that requires patience and a deep commitment to a long-term philosophy, so invest significant time before making such an investment. Build the relationship slowly, as both sides gain confidence in the other. Over time, a simple investment can scale into an entire investment platform. Make sure your values align with those of your potential partner and take the time to be certain about compatibility. Finally, approach these relationships as equal partnerships, unlike more transactional arrangements.
Are there any operational considerations particular to investing in Latin America?
Traditionally in Latin America, cost of capital, including cost of debt, was markedly higher than in developed markets, which led to more conservative capital allocation strategies and financial engineering. The gap has reduced substantially, but is still far from the US and Canada, making these strategies imperative.
Compliance is a key consideration. This isn’t exclusive to the region, but investors should consider intensified due diligence in compliance-related issues, especially for companies involved in infrastructure, large construction projects, or public sector contracts.