Investment

Are the next gen of a family business better at managing your money? Ask Julien Sevaux

In calling his advisory firm Eighteen48, Julien Sevaux was more than aware of the revolutions which broke out across Europe that year.

He doesn’t quite rule out a rerun in the 21stCentury following the disruption caused by Covid-19: “Expropriation often comes with revolutions. It could happen if the populace get in.”

Sevaux concedes it is hard to win clients during a lockdown. But Eighteen48 has used it to develop its philosophy and put out feelers to job candidates whose current bonus prospects have deteriorated, courtesy of Covid-19

The year 1848 was also when his family started a coal importing business which became Worms & Cie, a large French conglomerate involved in sugar, paper and insurance.

Sevaux served on its board, only to see it swallowed up in 1997 via a $5.2 billion takeover by a group led by its ally the Agnelli family, to thwart a bid by corporate raider Francois Pinault. 

Sevaux had always seen value in a long-term approach through the development of Worms & Cie. After 1997, he came to realise that companies must adapt to survive.

Sevaux started Eighteen48 in 2018 with former corporate financier Tarek AbuZayyad, who once worked for Berggruen Holdings, the family office. AbuZayyad’s Middle East relations complement Sevaux’s European connections. Their investment chief is former Lazard & Co banker Edward Clive, who also has family office experience.

All three worked at advisory firm Stanhope Capital, which Sevaux started with Daniel Pinto in 2004. They now want to develop in-house analyst expertise at Eighteen48, plus opportunities in sectors like private assets and distressed debt. 

Their advisers include Nicolas Moreau, head of HSBC’s asset management division and Lee Le Brun, who leads M&A for Rothschild North America.

Sevaux says it is high time for investors to back away from short-termism and embrace long-term resilience. A revolution in attitudes, if you like.

“You’d be shocked at the low returns achieved by investors on an annualised basis over the last ten years. It’s in the low single digits – 2% or 3% compound. People have been too conservative. They have been perennially pessimistic. They have viewed the market as expensive, that it is never the right time to go in. 

He adds: “They freaked out when markets fell this year and sat on the sidelines during the rally. They thought the world was going to hell, and never come back. Maybe the market has gotten ahead of itself. We could get a second leg down. But you can still pick up good companies at the right price.”

Consultants confirm managers using multi-asset and diversified growth strategies have also struggled over the last decade. Value strategies have decayed. 

Many clients have dropped their active managers, to harvest returns from cheap passive strategies.

Sevaux believes investors never shrugged off their negative mindset following the crisis of 2008. The subsequent bull market has been called the most hated in history. 

Investors have over-reacted to market volatility, taking profits too early, and cutting losses: “They have been chopping and changing portfolios too much.”

Private equity firms have used the uncertainty to buy companies from disillusioned shareholders. Their partners are among the clients who have provided Eighteen48 with $600 million to manage.

Apart from trading costs, short-term investors fail to benefit from the long-term compounding of capital gains and dividend income which nurtured renowned investors like Warren Buffett, plus Peter Lynch of Fidelity.

Sevaux says: “Lynch compounded returns at 25% a year for decades. I’m not necessarily saying we can do that. But investors are never going to achieve it if they keep moving in and out of funds, trying to time the market.

“Many investors haven’t yet adjusted to the fact that we are in a zero-rate environment. It’s probably going to stay that way for a while. On which basis, you could argue equity valuations are quite modest.”

For Sevaux, quality growth stocks will continue to play a big role in boosting his returns over the next twenty to thirty years. They are typically large corporations, ranging from Amazon to Visa, which have the intellectual capital to turn technology to their advantage and reinvest capital. 

Their balance sheets and franchises are equally strong, helping them to compete with rivals weakened by Covid-19. 

Quality growth helped Eighteen48 portfolios to outperform in the year to the end of May, which produced nothing worse than modest losses.

Eighteen48 retained a long bias throughout the period. It did not use an options strategy: “If you are a short-term investor, or you need the money in a year or two, maybe it’s worth paying the premium. We don’t generally think it is.”

Eighteen48 uses third-party funds to help manage portfolios, covering areas like distressed debt, private assets and long/short hedge funds. It has been allocating money to a secondary fund in venture capital. Sevaux also wants to diversify into real estate at some point.

Sevaux concedes it is hard to win clients during a lockdown. But Eighteen48 has used it to develop its philosophy and put out feelers to job candidates whose current bonus prospects have deteriorated, courtesy of Covid-19.

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