Reasons for Family Businesses to Seek HNWI Investors

Reasons for Family Businesses to Seek HNWI Investors

The very nature of a family business might make the owners shy away from seeking out High Net Worth Individuals (HNWIs) as investors, as they assume these investors are not just willing to front the money, without some sort of equity stake being involved. However, the findings from our recent Family Business Global Survey told a slightly different story. HNWI’s were able to speak for themselves, and here are the conclusions of what the respondents said.

Partner, Global Head of Family Business

KPMG in France


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Reason #1: HNWIs tend to have a personal touch

HNWIs often have family business experience, since many have built their initial wealth from their own family business. It is because of this background that they tend to find it important to remain in control of their investment portfolios. 

As many as 72% of HNWI respondents self-manage 50% or more of their wealth. Just 2% of those surveyed outsource all of their investments to third parties.As one Japanese entrepreneur notes: “I have created my own wealth; I will be hands-on in any investment but will rely on specialist advice. It’s hard-earned money so I need to dedicate myself to being involved in the process."

Reason #2: They are in it for the long haul

HNWIs are generally seeking to deploy their capital in opportunities that provide long-term returns and offer diversification benefits. Also, most HNWI’s surveyed, while preferring medium risk investments, responded that they were still open to investments in companies with differing risk profiles, if it seemed a good investment. 

This is good news for the less established family businesses who are still finding their feet, as HNWIs tend to go on gut feel with their investments, rather than just purely looking at the stats, like larger investors would do.

Reason #3: HNWIs understand family business

The majority of HNWI surveyed have experience in family businesses. Nearly half (48%) currently belong to an established family business that has been in operation for more than one generation and over a third (34%) have built up a business themselves. 

This fact should make most family businesses feel more assured about such an investor, as our survey findings also suggested that the majority of HNWI’s like to have a hands on stake in the business in which they’ve invested. This is the main reason you may have been avoiding such an investor, but many HNWIs perfectly understand the family business dynamic, and are not there to change it or control it, but rather to nurture the business to its potential. 

This level of involvement is reflected in the low proportion of HNWIs that use a family office to manage their wealth. Three-quarters do not use a family office, suggesting a less formal and more individual approach to wealth management is preferred by most.

Reason #4: HNWIs want to invest in family businesses

Our Family Business Global Survey found that:

  • More than 70% of HNWI respondents invest directly in other companies, with small to medium-sized companies being the most popular targets. 
  • HNWI respondents view family businesses as a good investment match, with nearly half having previously invested in at least one family business – 95% of those who have rated the experience positively. 
  • A long-term view, business profitability and the potential for a board seat are the three most important factors that would attract a HNWI to invest in a family business. 

Interestingly, our survey also found that most family businesses’ attitudes towards outside investors are changing. Under the right circumstances, most family businesses are no longer opposed to offering outside investors equity stakes in the business. 

Are you one of these family businesses?

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