This is Business Breakdowns.
Business Breakdowns is a series of conversations with investors and operators diving deep into a single business.
For each business.
We explore its history, its business model, its competitive advantages and what makes it tick.
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I'm Zach Fuss, and today we are breaking down Exxor.
The origins of Exxor date back to the end of the 19th century, when Giovanni Agnelli founded the auto company Fiat.
In 1923, Exxor acquired the Juventus Football Club, which it still owns today.
But over the company's 100-year-old history, a lot has changed.
While some of the core assets remain the same, today Exxor serves as an investment holding company.
Its largest and most notable assets are Ferrari CNH Stellantis, Philips and a number of other notable private companies.
Additionally, they've shifted focus to bulking up their alternative asset management business, Tengato.
Like many holding companies, Exor trades at a material discount to what the sum of its parts suggests.
But management has been steadfastly working to close this discount by selling assets, reallocating capital and repurchasing shares.
Today, Exor is led by Jain Elkan, the grandson of the late Giovanni Agnelli, the founder of the Exor empire.
Elkan was named heir of his grandfather at the age of 21 and has fostered and reshaped the business to what it is today.
To break out Exor.
I am joined by Krishna Mohanraj, a portfolio manager of the international strategy at Diamond Hill.
We hope you enjoy this breakdown of Exor.
All right, Krishna.
Thanks for joining us once again, this time to break down Exor, a business that has a storied history.
Our listeners probably know a little bit about a lot of the parts of Exor, but I think bringing it all together today in this conversation to highlight the history of the business and what is in this family holding company will be really interesting.
So just to kick things off, what is Exor?
Zach, thank you.
It's great to be back.
Thanks for having me again.
XR is a fascinating business to talk about.
It is a Dutch holding company controlled by the Agnelli family.
Giovanni Agnelli was the founder of Fiat in the late 18th century, and their family wealth is managed through this holding company.
It's a fascinating story for a couple of reasons.
First, you've got the history, as you mentioned.
Exxon is a Dutch company on paper, but in its bones, it's all Italian.
It's really the history of Fiat, so it's intimately tied with the history of industry in Italy.
Although the 20th century Fiat was the industrial engineer of the country, Fiat's factories were dedicated to the war effort during the First World War.
After that, I became a big part of the industry growth in Italy.
80% of the Italian auto market was Fiat.
And moving into the Second World War again.
Post the war, Fiat was a big part of the rebuilding of Italian industry.
The Fiat 500 was iconic.
Launched in 1957, huge global commercial success and put Italian engineering and design on the map.
After that, you have the tie-up with Ferrari.
So there is a lot to talk about when it comes to the history of Fiat.
The second reason it's interesting is that it's a story that's still evolving.
It's a holding company.
It's always changing.
You're not looking at one business in one sector.
And especially when you've got someone like John Elkann at the helm.
John Elkann is the great, great grandson of the founder of Fiat.
Someone who's uniquely qualified to be in that role.
Someone who not only represents the family, but also someone willing to learn, not afraid to change and make changes at XR.
It means the XR of 2035, it's not going to look anything like the XR of today.
And that makes the story much more worth following.
So you alluded to the leadership of John, who I believe has been with the business intimately for the better part of the last call it 20 or so years, but still a very young guy who's now shaping the direction of the firm.
When you look through the history of the business and its leadership, how has every chapter changed as they made that transition?
It's fascinating because you can actually look at the history of this company through three leaders, who all have had an outsized impact on the group.
Two of them were called Giovanni Agnelli.
And the third one, of course, is John Elkann, who leads the group today.
If we go chronologically, there were not one, but two Giovanni Agnelli's in that history.
One is the founder and the other is his grandson.
Both are remarkable.
The founder, of course, he was an entrepreneur, very strategic thinker.
Under his leadership, Fiat transformed from just a startup carmaker to a large industrial conglomerate.
It really became the symbol of Italian engineering.
And he was also very political.
Politically influential, was a senator in Italy for over two decades.
So that was the first Giovanni.
Then you have the second Giovanni, the grandson.
He was called Gianni.
He was a character both in business and outside.
He was groomed by his grandfather to take over the business.
And he transformed Fiat into a global company over a period of almost 40 years at the helm.
Crucially, he formed the partnership with Ferrari which, over the years, has become a masterstroke for the family's fortunes.
And outside the business too.
He made a mark as a global fashion icon dashing colorful, international figure.
He was very much in the international who's who of that time.
So that was the second Giovanni.
Then you have John Elkann now.
He's the grandson of Gianni and great-great-grandson of Giovanni, the founder.
And at just 21, he was nominated to inherit the leadership from his grandfather, somewhat mirroring the way his own grandfather was chosen to be there.
So there's a nice symmetry to that story as well.
You have these three key people who I think were responsible for building pretty much what has become XOR today.
But really, XOR of today was set up much, much later in the story, in 2009.
And the reason was to simplify how the family's assets were managed.
Because before that, it was a complex mess.
And in many ways, what Elcan has managed to achieve is to simplify that ownership under the XOR umbrella.
In fact, the original holding company of the assets goes all the way back to 1927.
It was called IFI.
Agnelli set it up to hold his investments, primarily his shares in fiat and also some other businesses.
Along the way, there was also a second holding company called IFIL, which further complicates how the family fortune was structured and managed.
With XR, all this has become simple.
You've got both the holding companies merged.
Everything was borne under the XR umbrella.
The legal headquarters was moved to the Netherlands.
The listing was moved there as well later.
So everything came under a single country regulatory authority.
It all made sense because you get full exemption on capital gains and dividends, a very competitive tax rate, extensive tax treaties globally.
So it made sense for a global company to be based in the Netherlands.
All that was done under Elcan.
There you have both a long history of the fiat group, but also under Elcan.
Over the last maybe 20 odd years we've seen a lot of change.
It's interesting because if you look at some of these family-led holding companies which have listings, they're typically extremely complicated.
I think about the Bolloré Group in France.
But this one actually, in the scheme of things, is somewhat straightforward.
Obviously, John Elkin, the architect of a lot of that.
And today we have what's primarily listed companies inside of this tax-efficient hold co.
I guess it's a good time to present of the 40 billion plus assets that they own.
What is inside of this holding company today that he's effectively cleaned up over the course of the last 15, 20 years?
Today, if you look at XR, you've got stakes in listed global companies, and then you have the private investments.
It's weighted very much towards the publics.
70% of gross asset value and gross asset value is roughly, let's say, 45 billion euros.
70% of that is in four companies, Ferrari, Stellantis, CNHI, which is Case New Holland, and Philips.
Then you've got maybe another 6% or 7% in smaller listed investments.
Iveco, Juventus, which is a football club, Clarivate.
The rest is in private investments, so a range of investments there.
Louboutin and Shangzia, which are in luxury.
The Economist magazine.
Veltec, which is a Danish tools company in the energy sector.
You also have an asset management firm that they set up a couple of years ago. called Lingotto.
If you think about that evolution, it's probably worth talking a little bit about how much that's changed.
In 2009, when XOR was born, it was predominantly a mass market auto company with a few other assets thrown in.
But with this transformation and the unlocking of value in fiat, It looks very, very different today.
Ferrari is their largest asset.
And like they say, Ferrari is not a car company.
And Stellantis, which is the auto company, is only about 10% to 12% of assets.
So if you think about the composition of today's business, John is paramount in architecting that.
So what is it that's influenced him to craft the company in this way?
What else is there to learn about John, who seems to be one of the more underrated business builders of his generation?
The first thing to say is when Elkan comes into the thick of action at FIAT.
Things were really, really bad.
He was nominated as heir in 1997 when he was only 21.
And that itself was because of a family tragedy.
Gianni's own son dies of cancer in 1997.
But really only in 2003, 2004 does Elcan take over.
His grandfather dies in 2003, his great uncle in 2004.
So at the ripe age of 27, he becomes the sole family representative at the firm.
And at that time, both financially and operationally, the company was struggling.
They've been through four CEOs in three years.
And for a while, it looked like the firm won't survive.
So that's really the context of the start of Elcan, if you will.
The second thing to say is that he had almost the perfect background for what this group needed.
Very global mindset, born in New York City, schooled in the UK, Brazil, France, engineering school in Turin, multiple global internships, works for a couple of years at GE, another very global experience.
He was fluent in four languages.
And since 1997 his grandfather had gone out of the way to include him as a silent participant in a lot of business phone calls, later reviewing what was said, etc.
To give him a vicarious sense of the business.
While it was definitely trial by fire at the start, he also had a lot going for him when he started.
One of the first things he does when he takes over was play a role in the selection of Sergio Macchione as CEO of Fiat.
This was very controversial at the time, because Marchionne was an outsider, but it ended up being a brilliant decision.
Marchionne was known to the family.
He had turned around this testing company called SGS and made a lot of money for the family.
So he was known to them, but still a long shot.
And Mancini really went to work at Fiat.
First, he manages to get about 2 billion from General Motors to get rid of a put option that Fiat had with them on Fiat's auto business.
At that time, the last thing that GM wanted to do was to take on a struggling auto business from Fiat.
So they pay him $2 billion to cancel that.
Sergio then goes about almost single-handedly, taking control of the car business, cutting costs, driving the team to execute.
The family also had to put in capital to renegotiate bank debt.
And from the brink of disaster, they turn it around.
By the time the financial crisis hits, Fiat is in a position to not just survive but actually merge with Chrysler.
That move to hire Marchionne made a huge difference.
Marchionne ends up not only transforming Fiat, but also becoming a legend in the auto industry.
He also went a long way towards the education of John Elkann.
Even today, Elcan every opportunity he gets, he pays homage to Sergio as both a personal mentor and a transformative figure in his life.
Exxon is formally in 2009.
Fiat itself was transformed from a struggling conglomerate into its pieces.
You've got Stellantis, the auto business after the merger with Chrysler and Peugeot CNHI, Iveco and, of course, Ferrari.
15 years, the amount of change in XR has been staggering.
If you look at the listed investments, maybe the big four in 2009.
Three of the big four are no longer in the portfolio.
So that tells you the extent of change.
How do you think about those big four in the context of the portfolio today?
What is important to think about as it relates to each of those, independent of one another, and maybe starting with Ferrari.
What can you say about Ferrari?
I think you have a whole episode on Ferrari and business breakdowns.
For XOR, it's been the gift that keeps on giving.
Over the last decade or so since listing, the value unlock in Ferrari has been incredible.
It continues to be the big driver of NAV per share growth for XOR.
With Ferrari, the big question has always been this.
Is it a car company or is it something more?
Is it an ultra-premium luxury company?
And if you hear John Elkann talk about it, it's not a car company.
It's a very special company, something beyond great.
The ethos of Ferrari is motor racing and selling cars is almost an afterthought.
That's what makes them unique.
XR.
As we know, they are trying to build great companies, and what they have with Ferrari is something beyond great already.
If you look at what the market is saying, the market agrees.
It's clearly saying this is not a car company.
But I think that's a question that will be asked over and over again.
The EV transition is coming, and that will raise that question again.
And I think that will be a further reconfirmation that they're nothing like a car company.
But that is still TBD, I think.
The main thing to mention from a portfolio standpoint is the size of the Ferrari stake as a percentage of NAV.
I think it started at 15% and went as high as almost half the portfolio.
In February, XR sold about 3 billion worth of shares, with the intent of using the proceeds towards both buybacks and additional investments.
So, in a sense, they are signaling a few things, acknowledging that Ferrari has become a huge part of the portfolio.
They like concentrated, but I think they're comfortable with a concentration level of 25 to 30, and Ferrari had grown much beyond that.
Also, they are signaling that they find their stock with an NAV discount which we'll talk about, to be hugely undervalued.
And all things equal, they want to invest in something that they know best.
And what do they know better than XOR itself?
So an intent to buy back shares while reducing overconcentration in their Ferrari stake.
When you talk about listed investments, Ferrari would be the number one investment for them.
If you think about their listed investment portfolio in the big four, they kind of check the box on a handful of industries.
Ferrari, an automobile company, but with a luxury overhang.
Stellantis, then your next company in what's a cyclical industry in auto industry.
Clearly, the involvement of Sergio Marchion and changing the trajectory of their auto business is paramount.
But today, it's a challenge sector.
How do you think about the stake in Stellantis and what are they doing in order to help improve the outcome, to drive NAV at Exxon?
Perhaps it's worth talking about Stellantis, CNHI and Iveco together, because they all came from the conglomerate.
They're all, in their own ways, cyclical, capital intensive.
They are all in some phase of a turnaround. with challenge-drained markets.
WICO is a little bit different because of their defense exposure.
With Stellantis, it is the product of a mega merger between Fiat Chrysler and Peugeot.
Marchionne, in a very famous presentation a long time ago, talked about essentially the overcapitalization of the auto industry.
And one of the biggest themes for Fiat was to reduce that by consolidation in the industry.
So Stellantis is a product of that.
It is definitely a car company.
There's no question about that.
And the market says that clearly.
If you think about the multiples and the troubles that they've seen over the last few years, It is a difficult business.
They have done their best to make the transition to EV.
They have done their best to address the overcapacity.
But essentially, it is very clear that it's trouble.
You can see that from the multiple.
The valuation is undemanding.
From a portfolio perspective, the exposure as a percentage of assets for XOR is about 10%.
It's quite low compared to the historic exposures.
Then you have CNHI, which again came from the old Fiat conglomerate.
It is the more cyclical on-highway trucks business, was spun out as Iveco.
And the ag equipment business, which is a more higher quality, less cyclical business, became CNHI.
They are the number two global player in that space after John Deere.
A lot has happened at CNHA over the last three, four years.
To simplify the company, invest in technology.
But again, it is facing a cyclical low in its end markets.
Still a work in progress.
We have a new CEO who's actually an insider from Iveco.
For a very high-quality business, the valuation is not demanding.
It's another asset to look out for in the coming years.
And then on Iveco.
It's a global maker of commercial trucks buses, defense vehicles spun off in 2022.
The interesting thing is they're trying to separate out the defense business as a spinoff or a sale.
And, as you can imagine, right now there is a lot of market demand for anything in the defense sector.
There is also chatter on MA for the core business as well, including some potential conversations with the Indian company Tata Motors.
A lot more current news around Iveco, but it is a smaller stake for them in terms of share of Panavie.
If you look at the three businesses, I would say they're reasonable to cheaply valued businesses facing both idiosyncratic and weekend markets.
From a portfolio standpoint, it feels like you're getting assets which are fairly undervalued.
And we will talk about the NAV as a whole and what the stock trades as a discount NAV.
But in the underlying NAV.
With the exception of Ferrari, I wouldn't call any of the other listed companies as overly valued.
I know we have left Juventus Clarivate, and then Philips, which I want to set aside just given the continued interest there.
But Juventus probably takes more mind share than it really does economic share, just given how high profile sports are today, but somewhat of an immaterial stake for them.
And then Clarivate, which is an interesting one, given that has very significantly underperformed as a listed company.
But just curious how those assets came to be part of the portfolio and the varying degrees of importance and support for their broader capital allocation strategy.
If you start with Juventus.
I have a lot of positive things to say about capital allocation in general.
But Juventus always raises some eyebrows.
It is a storied asset.
Over the long term it seems to be worth a lot more than at least recent troubles and valuations would suggest.
But you have to definitely ask the question economically, does it move the needle in terms of XOR's chosen metric NAV per share?
It is definitely a quote-unquote legacy asset.
I can't find a better word for it.
And you have to ask why they need to own a stake in a football club with a very checkered recent history, not just in performance but also in terms of corporate governance scandals.
Entire board, including the president, had to resign.
The president was an ignali to add to everything.
This is clearly a family passion football and the family's relationship with Juventus goes back generations.
So it's a tiny part of asset value.
So a fair question is why bother?
Isn't it just a headache that takes away from what is really crucial for NAV per share growth?
And the only possible reason it's in the portfolio is because it's a family passion.
So it is what it is.
Clarivate is a lot more interesting.
Clarivate is an analytics company spun off from Thomson Writers.
They serve the academic market, the scientific market, life sciences, intellectual property, assets around it.
It's a subscription business.
It provides things like literature reviews, comparative intelligence, data on patents trademarks, etc.
Now, if you think about where XOR is thinking about going in the future, in places like healthcare technology, Clarivate not only is an interesting investment in itself, but it provides one of the building blocks, I think, for them in that ecosystem where they want to step into the future.
We will talk about Philips and Institute by Ameru, other investments in that space.
And they all seem to kind of fall in that bucket.
So it is quite an interesting investment in the context of the portfolio and where they want to take the portfolios.
I think this is maybe a good point to check in on broadly valuation here.
What's always striking about these publicly listed holding companies is when they traded such a significant discount to what the listed constituents would support on valuation.
And then, of course, this is a business that also has investments that are not listed, which we'll discuss in some level of detail.
But What is this setup here as it relates to their published NAV and the listed interest and the way that the stock trades and then further, how they are making efforts to close that discount to NAV in a way that are material?
The mechanics of the valuation is super simple.
The asset base is dominated by publicly listed companies.
A full 70% of assets is listed.
You have a market price for them.
You can make reasonable assumptions on the private assets based on disclosures.
Subtract net debt and you end up with a reasonable estimate of spot NAV.
You don't need to be too precise here, because the stock trades at a big discount to this now anywhere from 50 to 60 percent, depending on your assumptions.
And you're going to find the discount quite attractive.
So the mechanics of the valuation itself is pretty straightforward.
But you have some big questions.
The big question is the underlying assets, both the listed ones and the unlisted ones.
What are the true valuation for them?
But also, what should the discount be?
What should the NAV discount be for a publicly listed holding company like this?
So, starting with the first question, if you look at the big four public assets Ferrari Stellantis CNHI, Philips Ferrari is, of course, a unique asset.
We said that it's an exceptional business, but it trades at a steep multiple and they seem willing to trim these prices.
So that's something to think about.
The other three are all global businesses Stellantis CNHI, Philips each facing a difficult business cycle and in the midst of turnarounds.
None of them are trading at steep multiples.
So if I put all of these together, I would say all in, you're getting a diverse mix of global businesses at reasonable prices.
Now to the NAV discount, I think it's interesting to see what the market is saying.
Now having a NAV discount is a part and parcel of being a holding company.
There's no getting away from it.
Having said that, in the case of Exo, that discount has been unusually high for a very long period of time.
So why is that discount high?
The market, of course, loves companies that are doing unique things and are exceptional at them.
Ferrari, of course.
Hermes would be another example.
But if you think about it, a holding company is the exact opposite of a pure pay, exceptional business.
I would say the NAB tells you the asset value of today.
But for a holding company, it's hard to tell where it would be in five years from now.
And it appears the market is saying they don't believe that they can maintain that NAV per share growth like in the recent past.
The NAV per growth that I saw in the last three, four years, even longer, has all come from Ferrari.
If you remove Ferrari, this ends up being an odd collection of turnarounds in markets that have both cyclical and structural headwinds.
And then you have this collection managed by a third party who acts with a time horizon that might be much, much longer than what most market participants want.
So why bother when you can own Ferrari directly if you want an exceptional company at a steep multiple, or if you want to play a value-owned Philips or CNHI selectively, depending on your conviction.
So that is the debate, really, and it's a fair debate.
In all this, what I like is how pragmatic Elkan is when he talks about the discount.
Not defensive, not complaining that the market is wrong but, I think, correctly recognizing that the discount is an amazing opportunity for them, an opportunity for XOR to invest in themselves, to invest in something that they know very well and buy back their own stock.
The decision this year to trim Ferrari to buy back stock.
It raised some eyebrows but it was an excellent one in this context because it allowed them to buy back stock at very steep discounts to NAV.
As an investor.
If you need to be in this, you need to have a long time horizon and you need to believe that there is alignment between Elcan and the minority shareholders.
Over time, you will see an AV per share growth.
You shouldn't be in it hoping for a narrowing of the discount, because that is not in management's control.
So go a bit deeper on that topic, as it relates to their broader capital allocation policy, but also governance.
Because one of the reasons that holdcos tend to trade at a discount to their sum of the parts is because people don't trust management to either treat their minority shareholders well and or focus on growing NAV instead of serving the best interests of the family themselves.
And so how do you think about that here, given John Elkann has a demonstrated track record of creating value?
But to your point, a lot of that value has come through value appreciation at Ferrari.
What is the go-forward capital allocation strategy look like?
And how do you think about governance as it relates to the minority shareholders?
Capital allocation is the key question here.
You have a holding company right now with really an odd mix of assets.
What you're asking is, what will this look like in five to 10 years?
And that comes down to capital allocation.
There are one or two negatives.
I mentioned Juventus.
They are small, in my opinion.
Once I've gotten that out of the way, almost everything I would say on capital allocation is positive.
The way they define the investment approach itself is very systematic and very clear.
They frame their approach as a duality entrepreneurial spirit on one side and financial discipline on the other.
If we start with the entrepreneurial spirit, they define their purpose as building great companies with great people, which really means buying and owning companies which are great or potentially will become great.
And they measure their success with a very clear metric per share growth and NAV and benchmark it against the MSCI world benchmark, which recognizes that they're global and their canvas is really the whole world.
But building great companies with great people sounds nice, but it's not an easy thing to do.
And they've definitely had exceptional success in turning a mess that was fiat into a more manageable group of global companies.
They've done generally well with several investments over time.
And, of course, on their chosen metric, they've done really well, benefiting from the value unlock in Ferrari.
But it's still a work in progress.
That is an open question as to where this goes in 10 years.
The second part of that purpose is the people.
And to your question on corporate governance, more than half of their role is about finding the right people.
Finding the right leaders, understanding their plans, and then giving them the space to execute.
They are looking for people who can think long-term, but can act in the now.
The greatest success, again, Sergio Marchionne, who's one of the greatest CEOs ever.
He was an outside CEO.
But they're also open to people who come both from within and from outside.
Benedetto Vigna at Ferrari was an outsider.
His selection was super interesting.
Very strong technical leader many patents in sensors and microelectronics.
He seemed a very inspired choice again not auto to lead Ferrari into the EV world.
At the same time, there are also homegrown leaders, Gerrit Marx 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 and 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 tenant they have never compromised on in the last 20 years.
And it very much comes from the initial days of Elcan when, as I mentioned, the family had to put in more capital to save the company from going down.
So the very simple philosophy there is keep debt between 10-20 of the asset base and increasingly, keep the mix simple as well.
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 orphans 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.
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 is this private portfolio look like?
I would call it an odd collection.
So you've got the Economist magazine.
XR 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 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 Institute Meru, which was a recent investment.
It's a family-owned healthcare company in a range of things.
Diagnostics vaccines immunotherapy, food safety, nutrition.
It's really a first step for XOR into this world, along with the investment in Philips.
There's a lot of match with the family old culture, with the Meru 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 Weltec.
Weltec is again another very, 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 Exxon 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 Weltec.
They've also started an asset management platform in 2023.
It came a little bit out of their relationship with their ownership of Partnery and the people there and then eventually the sale of Partnery to Covea.
It has about 64 billion in asset across a range of strategies long-shot public equities fund-to-funds, direct private investments.
It's operated independent of XR.
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.
It's valued at face value, which isn't significant, but it could be.
Notably, one of the assets you did not mention is their former reinsurance business, Partneree.
Notably, they decided to acquire and 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.
The Partnery transaction is actually a pretty interesting one to look at.
Partnery was a reinsurance company that XR 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 XR thinks about investments, the strategic rationale and also, you know, 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 XR was betting on.
They figured, look, we can observe 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's 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 Partnery, 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.
Exxon realized that they were getting a solid offer from Covea, 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.
They actually brought in some strong talent from Partner E and from Kovea.
Also, a more long-term partnership with Kovea to launch their asset management firm.
I think that fits in with how XR operates in always thinking ahead, always moving the business one step forward.
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 a 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, and some of these listed companies that trade it, 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 XOR in 2035 and 2050 and beyond?
There is a nice quote from Gianni that John Elkann quotes.
Groups like ours typically go through three stages in their development a time of strength, a time of privilege and a time of vanity.
For me, the first is the only one that counts.
Essentially, what they're saying is that the heart of what they want to do is to invest in change, but maintain their financial strength along the way.
That means change is slow measured, but there is constant refresh and renewal.
And pretty much in every interaction with the investors.
John Elkamp points out that they're constantly looking to change.
Their intention is to renew that asset mix all the time, look for opportunities.
There are three sectors that they've highlighted as for the very long term where they want to be.
Healthcare, luxury, and technology.
Very, very long duration plan to build both knowledge, expertise and investments in those three areas.
Out of the three, luxury is kind of obvious.
With Ferrari, clearly, they know the space very well.
They've made some small moves there.
We've talked about Louboutin, and they also have a majority control of Shangxia in the Chinese market.
But the reality is there's not much to do in luxury.
Luxury, especially at the very high end, is a super small, crowded space.
Not that many companies that are independent.
And if you want to stay in the super premium end, even less so.
Anytime there is any opening.
There is so much interest in unique assets that it seems like the likelihood of them finding anything at the right price is pretty low.
Second, you've got technology, a space that is still recently was very new to them.
But so much is happening there.
If you think about the depth and breadth of what's being created in AI.
They are doing their best to build expertise through Vento, which is a seed program that they support in Italy.
And also their ventures business has begun to mature.
Over the years, they've taken some bets in mobility, some areas of AI.
In fact, one of their investments through ventures is a company called VIA.
It's in the urban mobility space essentially optimizing pooling of multiple passengers for vehicle fleets.
Exxon invested in 2020.
They own about 9%.
Just recently, we have filed an S1, a confidential filing for an IPO.
Some early example of a success story coming out of ventures.
To add to what we talked about in the private space lots of optionality there that could be hidden.
That could play out over the next five, 10 years.
Also very interesting to note that earlier this year, John Elkann joined the board of Meta, which at the very least, gives him a ringside view to AI.
And it's very clear that he has all the access to the who's who in Silicon Valley.
Early stages and remains to be seen what could be a bigger step for them in the tech space.
Finally, that brings us to healthcare, which is really the most promising area for them, at least till now.
They are very clear on the long-term thesis. the secular need for healthcare.
They're especially keen on the healthcare tech side of things.
So imaging, diagnostics, tools, genomics, services.
Even though they've called out technology as one of the three focus sectors.
Healthcare technology is probably where they're likely to spend, build more expertise and more investments.
They've already had some significant investments.
Philips and Institute Meru both seem great investments in themselves and also strategic, giving them a front row seat into that space.
It's interesting if you look at the story at Philips.
In hindsight, it would seem obvious why XR would like the story.
The last decade or so at Philips has a lot of resonance with their own restructuring of fiat.
Philips went from a mix of everything consumer electronics lighting, semiconductors to a pure play.
Global health tech company.
And on top of that it is also facing both difficult end markets, idiosyncratic issues of its own, with a recall on their sleep apnea device.
If you're looking to get into the health space, if you're looking for a company that is global, dominant in health and technology and potentially on the path to greatness, which is a nice way of saying a turnaround.
There aren't that many ideas at scale that could be better than Philips.
I think they started with a 17, 18% stake and now increased to almost 20% board presence.
They have an opportunity to be part of that journey and they have the time, they have the ability to give Philips the stable ownership that it needs to execute for the long term.
There is a bear case, of course.
In healthcare, innovation takes much longer than people expect.
And very often companies don't get paid for innovation because of regulation just the way the markets are structured.
It definitely looks exciting, and we will see how that evolves.
And as that becomes successful, along with BioMeru again we spoke about a leading scientific group in that space shared ethos of family ownership.
In five years, XR could be a legitimate player in health tech.
At the very least, they will learn a lot in that space and that could change the flavor of this group for the better.
With a holding company set up like this, a leader who's opportunistic, doesn't seem afraid to make changes and take decisions.
It's very hard to come up with a five-year view, let alone a 10-year view.
So who knows what this group looks like in five years?
To some extent, that also makes it exciting, especially if you think about buying a collection of global assets right now at a huge discount and potentially significant optionality over the next five, 10 years.
I think it's definitely, definitely a bet on the jockey more than just on the current set of assets.
Just to highlight that discount to NAV, we have a business or a collection of assets today that would be valued around 180 euro, a share trading in the market for around 100 euro.
Clearly there's significant opportunity to close that discount.
But also, to your point, A handful of the most significant assets are themselves trading at somewhat modest multiples.
Philips obviously has a turnaround story.
C&H and Stellantis, which are going through their cyclical trough.
The opportunity set here is seemingly massive, not just to close that discount, but also to continue to compound NAV.
Unfortunately, we're coming up on time and I want to ask our customary question being when you look at this story and the research that you've done, what are the lessons that you've learned that you can apply to other investments?
And conversely, or alternatively, what are the other lessons that can be learned that can be applied to businesses or holding companies to improve the operational execution for their businesses?
Following XR over long periods of time.
It's really like living through a live global case study in investing.
There's so much to talk about, and we've touched upon a few of those themes.
The one clear lesson that stands out is decisiveness.
When you have to make a decision, make a decision.
If it turns out to be wrong, fix it.
There is none of what Buffett calls thumb-sucking, hesitating, waiting on decisions.
There's no on the one hand, on the other hand, and then delaying decisions.
If you follow XOR and I have since inception in 2009 and also before that through fiat, things are usually quiet, as you would expect from an investment holding company with a very long time horizon.
There's not too much daily, quarterly noise, but maybe two or three times a year.
There is some specific, intentional decision that is moving the group in a certain direction.
That comes from the clear intent to renew, refresh the portfolio with time.
And I think that comes from Elcan's initial years with the group the crisis, the fact that they had to find Marchione as the CEO on the fourth or the fifth attempt within two years.
What he learned was if they had stuck with the status quo, they would not have survived.
I think that makes Elkan decisive, willing to change.
When CEOs don't work out, no hesitation to try something different.
Long-term investors tend to have a bias to no action, sitting on past decisions in the name of long-term and patient.
But investment decisions are not perfect.
People decisions are not perfect.
Even if they were good decisions for when you made them, the environment changes.
It's always worth revisiting.
I think it's a good lesson for us long-term investors, when we understand that our bias is towards no action, to ask if we're hiding behind long-term because we're afraid of uncertainty.
To try and be more decisive and make decisions when you have to make decisions.
That was a really interesting summation of a business that probably could take countless hours or days to cover in sufficient depth.
And so I think this is a great introduction to XOR, and we'll continue to monitor the story and the situation as the business evolves.
Thank you, Zach.
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