In a world where artificial intelligence (AI) is rapidly transforming industries, some family investors are taking a step back and seeking refuge in old-economy businesses. This intriguing strategy, dubbed "HALO" (Heavy Assets, Low Obsolescence), is a fascinating approach to navigating the uncertainties of the future.
The Rise of the Anti-AI Trade
Equity Group Investments, backed by the influential Zell family, has embraced this strategy, investing in a John Deere dealership, a bluefin tuna fishery, and even a pedestrian bridge. What's remarkable is the firm's focus on industries that might seem outdated to some, but which offer stability and resilience in an era of technological disruption.
A Long-Term Perspective
Mark Sotir, president of EGI, emphasizes the importance of a long-term view. "If you're thinking out 10 years, you have to choose wisely," he says. This long-term perspective is a stark contrast to the fast-paced world of tech startups and AI ventures, where the future can be unpredictable.
Why Old-Economy Businesses?
Old-economy businesses, such as dealerships and fisheries, provide a steady cash flow and are less susceptible to the rapid changes brought about by AI. They offer a sense of security and stability, which is appealing to family offices investing for future generations.
Tax Benefits and Opportunities
The "one big beautiful bill" law has further sweetened the deal for these asset-heavy businesses. Bonus depreciation allows companies to deduct the full cost of assets in the first year, providing a significant tax benefit. This, combined with the proactive tax planning approach of family offices, makes these investments even more attractive.
A Different Kind of Advantage
"Asset-light" businesses might be all the rage, but Sotir argues that paying a premium for them may not offer the advantage it seems. Asset-heavy businesses, on the other hand, provide a unique opportunity for family investors to acquire at a discount, especially given the traditional PE investors' focus on shorter time horizons.
The Resilience of Old-Economy Businesses
While these industries might not be immune to disruption, they often come with geographic moats, limiting competition. For instance, EGI's dealerships benefit from franchise terms that prevent nearby competition. Similarly, the bluefin tuna fishery has substantial barriers to entry due to fishing quotas.
Navigating Uncertainty
Interestingly, the economic uncertainty and challenges faced by businesses, such as rising costs and tariffs, have created opportunities for EGI. "People are worried about the space, and that's the perfect time for us to step in to buy," Sotir notes. This counterintuitive approach showcases the firm's ability to turn adversity into advantage.
A Thoughtful Conclusion
The strategy of investing in old-economy businesses is a fascinating contrast to the tech-focused investments that often dominate headlines. It's a reminder that, in a world of rapid change, stability and resilience can be powerful assets. As we navigate an increasingly AI-driven future, the insights and perspectives of family investors like EGI offer a unique and valuable perspective.
