Alexander "AJ" Stern
The remarkable investment leader unlocking additional value to his portfolio while improving the world in the process.
Giving back is a core element of AJ Stern’s upbringing and philosophy that drives him as the president of Beverly Hills investment firm AJS Capital. The company engages in private equity, venture capital, and alternative investments across a range of asset classes with the objective to generate outsized risk-adjusted returns. The firm mainly concentrates its investment strategies in real estate; specialty finance including asset-based lending and litigation finance; marketable securities with a concentration on closed-end funds and structured notes and private securities with further growth potential. Since the outbreak of COVID, the firm has had an even sharper eye on socially conscious investments.
A business veteran with investment expertise that spans a range of intricacies, AJ’s reputation for seeking opportunities across all sectors is known far and wide. He has merged his exceptional passion for finance and investing with his innate desire to give back to build a company that, with its partners, has been involved in transactions well over $1 billion in just its first four years.
AJ’s parents, Alan and Lisa Stern, have been well known community leaders for over 35 years attending numerous meetings and events with world leaders and visits to the White House. His wife’s grandfather, two-time Academy Award winner Rabbi Marvin Hier, is the founder and dean of the Museum of Tolerance, Moriah Films, and the Simon Wiesenthal Center, an accredited global human rights NGO with a constituency of over 400,000 households. Today, as the torchbearer of a philanthropic legacy that stretches back generations, AJ and his wife support over 50 charities annually, including acting as chairman of the annual TomcheiLA charity golf tournament and president of his local temple.
In 2017, AJ founded AJS Capital with a unique model that reflects his commitment to giving back, one that brings value to its partners and investors while contributing to the betterment of humankind. From pistachio farms to senior health facilities to promising biotech and healthcare upstarts, where AJ sees promise, he invests—and everyone benefits. We had the privilege of sitting down with AJ to learn more about his strategy for finding diamonds in the rough and why socially conscious investing is the driving force behind a firm that shows no signs of slowing down.
Tell us a little bit more about your company, AJS Capital.
The company is built on two main pillars. One is to invest in opportunities that generate an outsized, risk-adjusted return. The other is to focus on risk control and low-cost basis with an eye on opportunities in less efficient markets that offer a margin of safety. We are also extremely focused on being tax efficient by utilizing tax-related tools such as accelerated depreciation, 1031 like-kind exchanges, tax swaps, tax loss harvesting, installments sales, tax credits, opportunity zones, donating appreciated assets, and many others. The firm prides itself on its communication and transparency. As such, the company operates on a deal-by-deal basis with its partners and investors while seeking input and perspective throughout an investment’s life. We specifically avoid the fund structure that raises money first from investors and has complete control over how those funds are used without the need for feedback. Despite investing in a wide range of asset classes, the firm’s disciplined methodology is always the same—seizing opportunities where we see market inefficiencies and mispricing, wherever they are.
AJS Capital has experienced an almost meteoric rise in just its first four years. To what do you attribute this astounding growth?
The firm’s continued growth can be attributed to its relationships and reputation. I get constant deal flow from my vast network given my reputation as someone who executes exactly as I claim and can provide the flexibility to make a deal structure work for all parties involved. If I say I am going to do something, I do it, and our partners, investors, brokers, and lenders have an extreme level of confidence in our firm’s ability to continue that trend. When I am presented with a new deal, I always provide timely input, recommendations, and assistance, whether I invest in it or not. This is how you build relationships.
Your approach is unique in that rather than confine your scope of investments to a few specific sectors, you look for opportunities wherever they may arise. Will you tell us more about this?
I pride myself on being nimble and open to exploring and potentially committing significant capital to new opportunities in unfamiliar sectors. The firm avoids trapping ourselves with tunnel vision that requires only assessing deals with characteristics that we have past familiarity and success with. While my initial focus at the start of my career was value-add multifamily, I strive to be flexible to changing market conditions and environments so I can be ahead of the curve and take advantage as circumstances change and present new opportunities. It comes down to a simple question—where can I make the most money with the highest risk-adjusted return given the current investment landscape?
While you have been involved in many transactions over the last few years, what has the firm invested in since the start of the COVID-19 pandemic?
Since the start of the pandemic, the firm invested in the areas of securitized structured notes of tech and investment banks, biotech, senior healthcare facilities, behavioral healthcare facilities, pistachio farm development and many others. I saw market inefficiencies and seized the opportunity to invest in deals that I strongly perceived as having a low-cost basis that could outperform other opportunities in a volatile market.
For example, I bought several structured notes on Amazon, PayPal, Goldman Sacks and Morgan Stanley at the beginning of COVID. The underlying stocks took a beating like the rest of the market, and I was confident that usage of tech companies Amazon and PayPal would increase as COVID progressed while investment banks Goldman Sacks and Morgan Stanley would vastly outperform traditional banks as they focus more heavily on fees-based businesses and do not have nearly as much toxic debt on their books given their far smaller lending platforms. While I could have simply bought the stocks directly, I chose to buy structures notes on these public companies as they provided mid-teens unlevered coupons and provided a margin of safety and barrier of 30% or more on the downside protection at the COVID level lows. Further, we had the option to leverage these marginable positions and create an over 10% arbitrage on the amount borrowed as our cost of funds were well under 3% to create an overall return well above 25% if the positions did not fall below the barriers. While I did not take that more aggressive route, having that ability and option to execute that strategy later holds tremendous value. Given the market volatility COVID created, I was more comfortable getting mid-teens return while protecting my downside than buying the stocks outright. These are just some examples that highlight our emphasis on principal protection.
Please tell us about some of your recent socially conscious investments.
Socially conscious investing is a fundamental part of our firm, and a value that guides me as an investor. Since the start of the COVID pandemic, our firm has made several investments in agriculture, senior housing, and healthcare-related companies.
We expanded our pistachio farm developments in Arizona turning unused raw land into job-creating pistachio farms. While Arizona has only about 1% of total domestic pistachio production, an increasingly large number of buyers have been requesting Arizona-grown pistachios given its unique flavor. The demand for pistachios has grown exponentially in developing markets such as India and Asia given its well-known health benefits attributed to its many vital nutrients and high levels of unsaturated fatty-acids and potassium. As the U.S. competes with Iran in world pistachio markets, the 2020 U.S. crop came in at about one billion pounds for the first time in history—around 350 million more pounds than Iran.
Another area of focus is senior housing. The sector is on the verge of major growth due to strong long-term demand from an aging baby boomer population. It is no secret that this sector has been one of the hardest hit during the recent COVID outbreak as many facilities were ill-equipped to properly handle the spread of the deadly virus. Many facilities are now in major financial and operational distress. We have made several targeted investments in underperforming and underutilized facilities with the goal to enhance the quality of care and expand the range of services to meet the growing needs of this most vulnerable population.
We have also entered the behavioral health space that provides treatments, programs, and therapies for those suffering from substance abuse, depression, anxiety, anorexia, bulimia, body dysmorphia, and many other forms of mental health disorders. COVID exacerbated the suffering of many dealing with these struggles as they were forced to isolate and severely limit contact with others. The rise of social media has also contributed to the substantial increase in demand for these services as some have unrealistic expectations of their appearance, behavior, or happiness based on some of the photoshopped images and videos they see on these online platforms.
Can you share a few of your healthcare and biotech investments that are aggressively addressing problems associated with the pandemic?
This is an exciting area for us, given the promise of not only the potential returns, but the potential impact on the world and its ability to help safely navigate this pandemic and any future COVID crisis that could emerge.
The most recent and potentially most important investment has been in a particular biotech company that is working on an antiviral that could possibly restrict the spread of all forms and variants of coronavirus. Despite the rollout of vaccines, COVID-19 still looms, as do the fears that they might be ineffective for new strains or other types of coronaviruses that might appear. Further, the current vaccines might only be good for a short period of time and require a periodic booster shot. In addition, a large percentage Americans and even healthcare workers are hesitant to get the vaccine. The company is working on a method that would restrict the ability of any type of coronavirus to replicate. The experienced and qualified team of doctors and researchers have a proven track record of success using a similar approach with many other viruses. The research and patents are becoming more valuable with each passing month as the company grows.
We were also one of the first investors in Osso VR, which provides virtual reality tools to the medical training sector. The company has seen its adoption skyrocket during the pandemic as medical device manufacturers and health care networks turn to training tools that do not require a technician to be physically present. Users can access this platform anytime and anywhere. They can use the platform to get far more reps in to enhance their experience, familiarity, and technical expertise. They have the world’s largest VR surgical training library utilized by thousands of surgeons a month all over the globe. The company continues to succeed and grow by disrupting and attacking the broader problems in health care by improving patient outcomes, democratizing access, and enhancing education. I saw promise in this company and the problem they were trying to address. Like all my investments, I strongly believe in this team’s ability to provide quality work product and execute on stated goals and objectives. They have more than proven their abilities so far and will continue to do so.
You and the firm have achieved remarkable success, all while never losing sight of your commitment to make a positive impact on others. Why is this important to you?
I grew up with a philanthropic background and having a goal to positively contribute to the world by addressing various needs. It is a fundamental part of who I am. To be able to use my skill and expertise to benefit not only our partners and investors, but the public is tremendously rewarding. It is important to note that no gesture or effort can be too small.
Alexander (AJ) Stern
President — AJS Capital