What's Happening?
Equity Group Investments, a private investment firm backed by the family of the late billionaire Sam Zell, is strategically investing in old-economy businesses such as a John Deere dealership, a bluefin tuna fishery, and a pedestrian bridge connecting
San Diego to Tijuana International Airport. According to Mark Sotir, the president of EGI, these investments are part of a broader strategy to avoid the disruptions posed by artificial intelligence and other emerging technologies. The firm focuses on asset-heavy businesses that are less susceptible to technological obsolescence, a strategy that has gained traction on Wall Street under the moniker 'HALO'—heavy assets, low obsolescence. This approach is particularly appealing to family offices that invest for the long term and value the stable cash flows these businesses provide.
Why It's Important?
The shift towards old-economy businesses highlights a growing trend among investors to seek stability amid rapid technological advancements. By focusing on industries with tangible assets and reliable cash flows, family investors can mitigate risks associated with AI and tech disruptions. This strategy also offers tax advantages, such as bonus depreciation, which allows companies to deduct the full cost of qualifying assets in the first year of use. This can be particularly beneficial for families with significant stock holdings, as it provides a way to offset income from other investments. The emphasis on asset-heavy businesses also opens opportunities for acquiring these companies at a discount, as traditional private equity investors often prefer asset-light models.
What's Next?
As economic uncertainty and potential tax reforms continue to influence investment strategies, family offices may increasingly turn to old-economy businesses. The resilience of these industries, particularly in sectors like auto and equipment dealerships, which offer essential services and high margins, makes them attractive investment targets. The ongoing focus on proactive tax planning and after-tax returns will likely drive further interest in these asset-heavy businesses. Additionally, the renewed bonus depreciation law could continue to incentivize investments in machinery and vehicles, further solidifying the appeal of these traditional industries.
