A family-owned wealth management house with a big value investing focus predicts that inflation pressures will subside, but it is staying fully invested and minimising cash exposures.

J Stern & Co, the investment firm which oversees assets for the 200-year-old Stern dynasty, in May 2021 went above the $1.0 billion mark for assets under management. And as wealth managers look forward beyond the pandemic, the drumbeat of concern about inflation gets louder. But J Stern & Co does not appear overly concerned. 

“As the global economy opens up again, it is normal that there are bottlenecks and shortages. Inflation is now spiking up, albeit from a very low base.  Are we entering a phase of hyper-inflation? We believe that the short-term issues will subside as people go back to work and global supply chains get back to normal and that there are few indicators of sustained pricing pressure,” the group’s founder, Jérôme Stern, told this publication. 

“Furthermore, given the massive amount of debt which the global economy and the global financial system has had to shoulder, a bit of inflation may not be necessarily a bad thing. As multi-generational families such as the Stern family have painfully learnt over centuries, the best way to protect wealth against inflation is to remain invested and to minimise unproductive cash holdings, which devalue in real terms,” he said. 

As reported a few days ago, a survey by UBS of high net worth families and business owners finds inflation is a growing concern. Governments have amassed heavy debts amid the pandemic, and central bank bond buying/money printing, along with forces such as supply disruptions, is driving up consumer prices. 

The J Stern & Co organisation comes to the inflation debate with a long perspective. The Stern family accounts for around 25 per cent of assets under management. The Stern banking dynasty traces its origins to a wine merchant family which transformed its business into a bank in 1805 on the counsel of their neighbours, the Rothschild family, who had gone through that transition a few years earlier (coincidentally, the same year that Swiss private bank Pictet was founded). The family flourished, operating across Europe. During the Second World War, the French branch of the family represented by J Stern & Co fled to New York in 1940.  

Whilst in New York, Maurice Stern created an investment strategy of long-term value stock-picking. In 1946, he returned to Paris to rebuild the banking business in Europe, including an asset management business. After being run by two generations, the business, called Banque Stern, was sold in 1988 to Swiss Bank Corp (later known as UBS). The family created a family office in Geneva for the Stern family.  J Stern & C is the continuation of that family office, having been brought to London after the global financial crisis.  J. Stern & Co became a regulated entity in 2012 when it took on third-party clients. Today, it has offices in London, Zurich and Malta. (One of the benefits of its Malta presence is that it gives the group a foothold in the European Union after the UK left it.)
 

“Our performance in recent months has been strong,” Jérôme Stern said. “The firm’s investments were resilient during the COVID pandemic, declining much less than markets and rebounding strongly,” he said. “We were pleased that we were able to weather the storm and deliver great value for our investors.”

A way to think of J Stern & Co, Jérôme Stern, said, is as a “specialist investment manager with a family as its core backer.” It means investors can take comfort from the fact that a large and established family is bought into the strategy of the business,” he said.

“The alignment of investors is key and behind a lot of the success we have had. Private clients have the same exposures as our family,” he said. 

A test of performance in action is the World Stars Global Equity UCITS fund, which is now more than two years old. It holds $170 million of assets and has outperformed markets, in particular being back to outperforming markets after the value/growth rotation that took place earlier in 2021. 

“Our approach is quality and value for the long term. Volatility and sector rotation are opportunities for long-term investors and we were able to buy value last year and growth this year,” Jérôme Stern said. 

“As we look forward to the second half of this year and next year, the elements for a strong recovery from the pandemic are in place, demand is strong and bottlenecks in labour, inputs and raw material will be overcome as supply increases. There will clearly be short-term spikes in inflation, there will be difficult comparisons after the strong growth we will see this year, and there is likely to be market volatility," he said.

“We invest only in quality companies that have strong and sustainable market positions, in good and growing industries, with strong managements and balance sheets so strong as to weather any kind of adversity. The pandemic has shown us how important our definition of quality is,” he said. 

“Value for us is buying companies at prices that allow us to compound at 8 to 10 per cent or more, in some cases much more, per annum. We have a long-term holding period and trade very rarely. We look at investments over five, 10 and 25 years. That is why turnover in the portfolio is low. We usually trade two to three stocks per year in any given portfolio. Some of the stocks we have in portfolios go back to the 1960s,” Jérôme Stern added.