Business Breakdowns
· Krishna Mohanraj
Scott Wine now at CNHI, he'd worked there previously and moved with the spin off. He came back to take the CEO role. Finding the right people and being very open to both insiders and outsiders is a big part of what they want to focus on. And once they find a good leader, they view their own role more like a critical friend rather than an aggressive owner. They will come in, look at plans, look at the Orgs, but let the leaders execute. That's really their structure of how they want to go about it. The flip side of the duality or the balancing side is the financial discipline. I would say that is the one core tenet they have never compromised on in the last 20 years. And it very much comes from the initial days of Elkann when, as I mentioned, the family had to put in more capital to save the company from going down. So their very simple philosophy there is keep debt between 10, 20% of the asset base and increasingly keep the mix simple as well. You know, mostly bonds, very little bank debt, well spread out long duration, five to six years. Gives them very simple relaxed capital position. That discipline means a few things. They will never be at the mercy of creditors. They can keep a stable dividend. They can play offense when the opportunity presents itself. And that could be either putting capital into new investments or in buying back their own shares. I think they value that way more than trying to, quote unquote, optimize their debt level. Essentially that duality comes down to act like an entrepreneur but with a rock solid balance sheet. And that's how they view the investment journey. And if you're managing a family fortune for the very long term, it's really the only way to do it.
· Zack Fuss
[00:00:00] S0: So in terms of further capital allocation, one of the nice things in some of these companies where they have private investments is there's potential for some of the unlisted companies to provide some sort of optionality. One thing I'd love to explore further is, is there anything inside of the unlisted portfolio that you think is particularly notable, either from a strategic perspective or from a valuation perspective? And then the second question is, as the business evolves, what do we think the future looks like? And perhaps we can take that after first discussing what does this private portfolio look like?
· Krishna Mohanraj
[00:00:00] S1: I would call it an odd collection. So you've got the Economist magazine. Exor is the largest single shareholder there. They used to own a small 5% stake historically and in 2015 they bought a larger stake from Pearson and became the largest single shareholder. Now the media business is a difficult one. By their own admission, it's getting more difficult with AI. Every journalist and every publication has to compete for relevance every day. But the Economist is a unique brand, a storied brand, business brand. It's not immune to this. But there is optionality there. Owning a marquee asset, or at least being the lead investor in a marquee asset like that. There is also some element of pride in public service, their ability to provide stable long term support, journalistic independence. It is more than a pure financial investment. But the optionality in the Economist is very interesting. You've got Institut Mérieux, which was a recent investment. It's a family owned health care company in a range of things. Diagnostics, vaccines, immunotherapy, food safety, nutrition. It's really a first step for Exor into this world. Along with the investment in Philips, there's a lot of match with the family old culture with the Mérieux family. They really see a very long term partnership there. Strategically this asset is super interesting and not really talked about because it helps them build expertise in an area that they see as a very long term fit. And then you have Louboutin. Louboutin is a French luxury brand, iconic women's shoes. Luxury is a difficult space to invest in, especially at the very high end. There is a lot of demand and a lot of players aggregating smaller players. They were able to find Louboutin because Louboutin was looking to be part of a more patient owner like Exor rather than be part of a large luxury group. Then they have Welltec. Welltec is another very interesting tech company. It's in the field of robotics and tools for the energy industry, basically oil and gas, especially in oil wells. Very unique investment and Exor was able to time that investment almost perfectly. In 2016 when the entire energy complex was under stress, they were able to make a partnership with Welltec. They also started an asset management platform in 2023.
· Krishna Mohanraj, Zack Fuss
It came a little bit out of their relationship with their ownership of PartnerRe and the people there. And then eventually the sale of PartnerRe to Covéa. It has about 6.4 billion in assets across a range of strategies. Long, short, public equities, fund of funds, direct private investments. It's operated independent of Exor. The idea is really to build a wealth asset management platform and attract talent across different styles. And they've had some initial success in terms of attracting really talented people from the industry. So that is another option for the future. Again, these are the things in the private portfolio that I would say aren't really valued as options right now. They're valued at face value, which isn't significant, but it could be. [00:00:00] S0: Notably, one of the assets you did not mention is their former reinsurance business, PartnerRe. Notably they decided to acquire then divest of that business quite quickly. But I'm curious just to take us through that decision making process and what they've learned or were able to incorporate into their business as a function of owning and then disposing of that asset.
· Krishna Mohanraj
[00:00:00] S1: The PartnerRe transaction is actually a pretty interesting one to look at. PartnerRe was a reinsurance company that Exor bought back in 2015. They owned it for about five or six years before selling it. And honestly it turned out to be a decent deal for them. Nothing spectacular, but solid. I think the IRR came out to maybe around 9, 10%. It was also decent sized, 9 billion purchase price. I think a good case study in how Exor thinks about investments, the strategic rationale and also the willingness to change their mind. Reinsurance at its core is about taking volatility from others. That's the whole business model. But here's the thing. Markets hate volatility. So if you're a publicly traded reinsurance company, you're in kind of a tough spot structurally. The better home for a business like that, somewhere with a strong capital base, long investment horizon, pension funds, family offices. Berkshire Hathaway has shown how successful that structure can be for reinsurance. And I think that's exactly what Exor was betting on. They figured, look, we can absorb volatility better than most. We've got patient capital, we can be opportunistic when pricing is attractive. We can even make better use of the float on the investment side. The hope was that this combination would lead to higher returns overall. Here's what actually happened. Their experience was just okay. That was because of catastrophe losses. Those are, as we know, inherently unpredictable. It just so happened that during the period that they owned PartnerRe, the industry saw an elevated level of cat losses. Returns were fine, but probably not what they'd hoped for. At the same time, market multiples for reinsurance companies were high and there was significant market interest. Exor realized that they were getting a solid offer from Covéa, the French insurer. So they decided, all right, let's take the win and move on. It seems like their original idea was to hold this for the long term, but their experience nudged them in a different direction. Now here's the cool part. Even though they exited the business, made a reasonable return from it, they didn't walk away fully empty handed. Beyond just the financials, they actually brought in some strong talent from PartnerRe and from Covéa. Also a more long term partnership with Covéa to launch their asset management firm.
· Krishna Mohanraj, Zack Fuss
I think that fits in with how Exor operates in always thinking ahead, always moving the business one step forward. [00:00:00] S0: Now that we've presented the different parts of the business, the prominence of the listed equity portfolio and some of the longer tail opportunities in the private portfolio, the question then becomes what does the business look like? If you look back over the past 20 years, there's been a very material evolution and they're now at a point where the current portfolio, whilst having its opportunities in some of these listed companies that trade at undemanding multiples. But it's a relatively clean story. As the percentage of gross asset value attributable to Ferrari grows relative to the rest of the portfolio, how do you think they then go and reconcile that difference in the future? And what do you think John's future is for Exor in 2035 and 2050 and beyond?