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Profile: meet the most influential bank dynasty you've never heard of

Profile: meet the most influential bank dynasty you've never heard of

The Stern family is possibly the most influential European financial dynasty that you have never heard of.

Peers of the Rothchilds and Goldschmidts back in the Free City of Frankfurt, its family members founded banks across multiple jurisdictions that have since morphed into the biggest and best known institutions across the Continent.

Over the years they have funded everything from the Panama Canal to the Wellington Arch, as well as making history by raising the first overseas government loan on the London market.

They have survived two world wars, the expropriation of assets in France and Germany and the Great Depression. It is fair to say they have a near unparallelled experience of intergenerational wealth preservation.

J. Stern & Co is the latest incarnation of the family business, founded in 2012 by Jérôme Stern and Chris Rossbach. And while proud of the family’s rich heritage, Stern (pictured below right) is looking forwards rather than backwards and aiming to write the next chapter of history.

‘With the great banking families, each generation has seen challenges,’ he says. ‘What allows wealth to be preserved and increased over time is the ability of the generations to adapt to the environment they are in.’

The family’s banking ties date back to 1805, when Jakob Stern established Bankhaus Jakob SH Stern & Co in Frankfurt. Originally a successful wine merchant, Jakob started financing suppliers and clients, which over time became a bigger business, prompting the switch into merchant banking.

 

Following in the footsteps of the Rothschilds, the patriarch later sent a number of his sons out across the continent to build new ventures.

Abraham and Leopold founded AJ Stern & Cie in Paris in 1832. They were followed by David and Hermann, who, after a spell in Lisbon raising finance for the King of Portugal to rebuild the country after a disastrous earthquake, later settled in London where they had issued the loan stock.

The family went on to found further merchant banking operations in Germany, Turkey and Belgium.

‘Each bank had its own specialities,’ Stern explains. ‘The German bank was extremely proficient in raising finance for the US railroad expansion and owned an enormous amount of stock in what is today Union Pacific.

‘The French bank specialised in financing infrastructure. Jacques Stern, its main partner at the time, was a co-founder and the biggest shareholder in Banque de Paris, which financed Baron Haussmann’s works before merging with Banque de Crédit et de Dépôt des Pays-Bas to form Paribas.’

As an example of the types of money-spinning deals that could be done in the day, the bank was also part of a consortium that negotiated a 15-year lease on the tobacco monopoly in Italy, while the London arm bought a stake in the Panama Canal in 1880 and helped fund the building of the Wellington Arch in London.

Much as now, the banking sector was fluid in Europe with frequent M&A activity.

 

After Hausmann’s rebuilding of the French capital was completed, Banque de Paris was later merged into what became BNP Paribas, while further consolidation saw the Berlin operation, Deutsche Asiatische Bank, form part of what is now Deutsche Bank.   

But while the family enjoyed considerable success throughout the 19th century, the World Wars marked a darker chapter in their history.

‘In World War I, a lot died on the battlefield and the relationship with the English cousins became a bit strained,’ Stern says. ‘World War II destroyed everything in Germany and a lot of the family died. The Frankfurt bank was forcibly sold and in France, they had to flee and the bank was taken over.’

Stern’s grandfather had been able to move some of his assets over to the US and he fled to New York to escape the Nazi persecution.

‘He looked at the terrible state everything was in. They had been a family at the pinnacle of society. They had castles and estates, and their old home in Paris at 22 Avenue Montaigne is now the headquarters of LVMH,’ Stern says.

‘My grandfather wasn’t an investor, he was a true banker and when his adviser told him to invest in the stock market, he said “it’s beneath me”. But he learnt about it and we at J. Stern & Co still follow his key principles today.

‘You need to invest for the long term. In the short term there is a lot of noise.

 

‘You have to have conviction, do your own research and invest only in quality. That is exactly what we do today.’

His grandfather later returned to Europe, rebuilding the French merchant banking business, which he sold to UBS in 1988 before setting up an investment company to manage the family’s assets.

Stern and Rossbach, who have known each other for around 10 years, decided to join forces back in 2010 to launch J. Stern, which has taken over the running of the family money but is now branching out to offer its private office service to the wider ultra-high net worth market.

Over the years, they had frequently invested together and developed their own process, which underpins how they manage money.

Rossbach’s background is predominantly in hedge funds, having previously worked at Merian Capital, Magnetar and Lansdowne Partners, after an initial stint in investment banking with Lazard Frères in New York. Stern’s CV predominantly comprises investment banking, as he has variously worked at Nomura, Credit Suisse and Salomon Brothers, along with a short-lived spell at the ill-fated Lehman Brothers.

But their skillsets are complementary and Rossbach says they are united by the same philosophy of buying quality assets for the long term and ensuring that their interests are aligned with their clients.

‘We have an approved list of stocks – about 60 – and out of that we construct bespoke portfolios for any of the family members or outside clients,’ Rossbach says.

 

‘All of the investments, whether it is a stock, bond or other investment, are held by the family, so there is complete alignment. Many large institutions have more of a sales attitude and there is little co-investment. People put their money where their mouth is.

‘We would never put people in an investment if we are not exposed to it. That is what we believe in.’

The family is spread across multiple jurisdictions and has separate accounts in France, Switzerland and the US. Portfolios are then tailored to individuals depending on their individual needs or constraints, such as around ethics or tax.

The portfolios are predominantly invested in equities, but do have exposure to fixed income, the level of which is designed according to the individual’s income requirements. The team can also hold collectives and alternatives where they can identify third-party managers who can consistently deliver a differentiated return profile. Whatever the asset class, all new positions must be approved by the investment committee.

The approach is very much long-term and low turnover, with an average stock holding period of three to five years and individual bonds typically held for their yield until maturity.

‘If we choose a position, the question is would you hold it for 10 years? We sold out of Samsung last year,’ Rossbach says.

‘The family had held it for 28 years. In the 1980s, Intel was the high-flyer and we were looking for the next one.

 

‘We identified two opportunities: Samsung and Taiwan Semiconductor Manufacturing Company.

‘We invested in Samsung, but last year we started to grow concerned about the sustainability of its position in the smartphone market and sold because we felt there were better places to deploy capital.’

The length of time the family held Samsung is indicative of their investment approach, looking to compound returns over multi-year periods, Stern says.

‘Our clients and family are trying to preserve wealth and purchasing power, not just beating inflation,’ Stern says.

‘The inflation both our family and clients are facing is in the order of 6-7%. If you look at the inflation index of highly desirable goods, which includes real estate in capital cities, healthcare and childcare, it runs significantly higher than headline inflation.

‘We are therefore always looking for quality and value, anything that can compound over this threshold if we invest long-term.’

Clients pay a flat annual management charge of 1%, with the average third-party client having a portfolio of $10 million (£5.94 million). Clients are also able to access co-investment opportunities through J. Stern’s merchant banking arm, which provides access to private and illiquid direct investment opportunities.

‘We are offering to others what we do for the family,’ Stern says. ‘We have seen wars, lost everything in France and Germany and lived through it. We can transfer that knowledge and experience to clients.’  

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