Funds management legend Peter Cooper has heard all the war stories about the so-called founder’s discount: the price you pay in the form of the odd related-party transaction, an excessive dividend or an executive appointment made on bloodline rather than merit for investing in companies with big founding or family shareholders.
But sticking with the style that has made his $13.5bn Melbourne-based Cooper Investors boutique funds management group one of the best performing in the country over almost two decades, Cooper is again defying the herd mentality and going against the grain.
The launch of his new Family and Founder global investment fund is living proof of his long-held belief that portfolio investing in founder-led, family-linked or employee-owned companies will deliver performance over the long term.
“These type of companies have that longer time mindset which aligns with our values as a firm,’’ says Allan Goldstein, the global equities portfolio manager at Cooper Investors and the lead manager for the new fund. “They might be quiet on the exterior but inside these companies have a burning furnace, a real drive to go out and build their businesses and pivot with the times.”
For 18 years Cooper Investors has only had 200 stocks globally on its watch-list.
More than 60 of those meet the Family and Founder fund criteria of having average insider ownership of at least 20 per cent and an average management tenure or family involvement of 40 years or more.
There are 21 stocks in the new fund, which was seeded by Cooper and his team on July 1. Seventy per cent of the long-only portfolio is invested in companies with market values below $30bn.
Two weeks ago it was opened to external sophisticated investors, including potentially institutions, before a hard close on December 31.
During its first quarter in operation the fund returned 5.2 per cent after fees, compared to the market return of 2.6 per cent. It will charge a 1 per cent management and 10 per cent performance fee, below the industry benchmark of 2 per cent and 20 per cent respectively.
In trademark Cooper style, Goldstein says there is no target for external funds. Talk in the industry is that the early demand is in excess of $300m.
“We have great institutional partners and supporters. A lot of them are looking for nuanced, specialist ideas. It is too early to comment but this fund is not going to be able to take billions of dollars,’’ he says.
Cooper’s institutional clients include Hostplus, REST, Legal Super, Catholic Super and State Super (NSW).
A study by UBS has found that listed family-owned firms have performed better than the overall market over the past decade. The UBS Small & Midcap Family-Owned Global List has returned 17 per cent a year in the past 15 years, against 6 per cent for the MSCI global large-caps and 8 per cent for the MSCI global small-caps.
Another study by Credit Suisse, looking at the world’s 1000 largest global family firms, has also found that their shares have outperformed by around 4 per cent a year since 2006.
About 30 per cent of the S & P 500 in America is made up of founder or family-owned firms.
“We have heard all the war stories that come out: that the founders just look after their own backyard and don’t see the other investors as partners. About the children that get executive roles who don’t deserve them and aren’t ready. Or where founders want dividends and suck the company dry. But when it works well it is a really powerful investment for a long timeframe,’’ Goldstein says. “We just don’t invest in those founder-led companies that do the wrong thing. Nothing about our process changes in this. The companies we invest in are our network, our contacts.”
Proof of the success of the Cooper way is found in the its latest accounts, lodged this week with the corporate regulator. From revenues of $80.2m last year, the company made a net profit of $29.4m, up from $25.7 a year ago. Most of the profits were paid to its owners, Cooper and his staff, in the form of fully-franked dividends worth $28m.
by Damon Kitney
