Most family offices are either a ‘single’ or ‘multi’. J. Stern & Co. has been both. Oliver Williams talks history, investments and Brexit with Jérôme Stern its co-founder and managing partner.
Oliver Williams: How do you invest your family’s wealth?
Jérôme Stern: We’ve been bankers for more than 210 years. We had our first bank in Frankfurt in 1805.
We were neighbours and were always very close to the Rothschilds. Both families had always had the view that when one invests, one invests long-term.
Within our family, my grandfather started to invest in great companies, after the family fled to the United States during the Second World War. At the time, he established three principles on how you should invest in markets, which we still follow today.
Firstly, you need to invest long-term because short-term anything can happen.
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Secondly, you need to do you own research because that’s the only way you can get conviction.
Thirdly, you buy only quality because quality prevails throughout generations and throughout crises, wars and everything else. And if you need to you can sell that quality because quality always has a price.
This evolved into a strategy that today we would call ‘long-term value stock picking’. I’ll give you an example: we’ve held Nestlé since 1956 and it has compounded every year since – 13% per annum.
OW: When did you set up the family office?
JS: We sold Banque Stern, our family bank in 1988 to Swiss Bank Corporation (now part of UBS). We then created a family office in Geneva in order to take care of our assets, following only one investment strategy: Long-term value stock picking.
I have had 17 years of investment banking experience and joined the family business after the Lehman Brothers bankruptcy.
I then cooperated with a friend who had been at Lansdowne Partners, Christopher Rossbach. With him we started reviewing the strategy. The more we reviewed it the more we felt we could continue it. And that’s exactly what we did.
OW: How did you go from a single to multi family office?
JS: In 2012 we met another family who came to us and said, ‘I like what you do, can you please do the same for me?’
He is a successful entrepreneur that had over the years successfully built and sold his family company and done really well.
Following that he had $50 million to invest. He then asked three banks to pitch for that investment mandate and received three proposals. He found all three appalling. They were complicated, intransparent, very expensive and definitely being run in the interest of the bank rather than in his interest.
We then gained the entire amount to manage – $50m – because we really understood his needs and also because we were able to do what he wanted and. That’s actually what a private bank should do.
Since then we have opened up to third parties. We have about 50 families for whom we manage accounts.
As we have been in this industry for six generations, we are used to managing a financial services business. So for us it was not even a discussion between a single or multi family office. That’s what we do.
OW: What can you offer your client families?
JS: We have three businesses: Our largest business is investment management.
Our other businesses are merchant banking and a consulting business, which we call the private office.
In the investment management business, we manage three in-house strategies of which the largest one is our long-term value stock picking strategy. We have a bench of 10 investment professionals who meet with companies, do the research, kick the tires. This approach allows us to generate eight to 10% per annum.
In our merchant banking business we co-invest with other families.
What we want to do is seed our own opportunities first before bringing it to others. When we see that the investment strategy works then we open it to others allowing others to invest alongside our family.
OW: Why did you choose to set up in London?
JS: When Chris [Rossbach] and I took over my family’s investment business we had a choice. We could have gone back to Geneva but we didn’t because London is a global financial centre and synonymous for investment competence. Hence, it is also easier to find competent investment, operations and other professionals here in London.
OW: Are you regretting that with Brexit?
JS: Our exposure to the UK, from an investment point of view, is relatively small. We estimate it to be around 5%.
Most of my family is outside the UK so for us we did not need to do much. But we meet often with families who are really worried.
If Labour comes in as a result of Brexit, people will be concerned about their capital, given what Labour are saying and may look as a consequence to move their capital out of the country.
The rhetoric is project fear in another fashion.