Exor：从Fiat危机到Ferrari辉煌——[商业拆解，第229期]

I'm Zack Fuss, and today we are breaking down Exor. The origins of Exor date back to the end of the 19th century, when Giovanni Agnelli founded the auto company Fiat. In 1923, Exor acquired Juventus Football Club, which it still owns today.

But over the company's 100-year history, a lot has changed. While some of the core assets remain the same, today Exor serves as an investment holding company. Its largest and most notable assets are Ferrari, CNH Industrial, Stellantis, Philips, and a number of other notable private companies. Additionally, they've shifted their focus to bulking up their alternative asset management business, Sangato.

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 John Elkann, the grandson of the late Giovanni Agnelli, the founder of the Exor empire. Elkann was named heir to his grandfather at the age of 21 and has fostered and reshaped the business into what it is today.

To break down Exor, I am joined by Krishna Mohanraj, a portfolio manager of the International Strategy at Diamond Hill. 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?

Zack, thank you. It's great to be back. Thanks for having me again. Exor 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 eighteenth 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. Exor 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. All through the 20th century, Fiat was the industrial engine of the country.

Fiat's factories were dedicated to the war effort during the First World War. After that, it became a big part of industrial growth in Italy. Eighty percent of the Italian auto market was Fiat. Moving into the Second World War and again after the war, Fiat was a big part of the rebuilding of Italian industry.

The Fiat 500 was iconic, launched in 1957. It was a 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, especially when you've got someone like John Elkann at the helm.

John Elkann is the 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 is also willing to learn and not afraid to change and make changes at Exor. It means the Exor of 2035 isn't going to look anything like the Exor of today, and that makes the story much more worth following.

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 he's 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?

1. The Agnelli Leadership Legacy

It's fascinating because you can actually look at the history of this company through 3 leaders who have all 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 1, but 2 Giovanni Agnellis in that history. One is the founder and the other is his grandson. Both are remarkable.

The founder, of course, was an entrepreneur and a 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 and politically influential. He was a senator in Italy for over 2 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 it. 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 a partnership with Ferrari, which over the years has become a masterstroke for the family's fortunes. Outside the business, too, he made a mark as a global fashion icon—a 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. 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 3 key people who I think were responsible for building pretty much what has become Exor today. But Exor as it exists 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. In many ways, what Elkann has managed to achieve is to simplify that ownership under the Exor 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 complicated how the family fortune was structured and managed.

With Exor, all this has become simple. You've got both holding companies merged, and everything was brought under the Exor umbrella. The legal headquarters was moved to the Netherlands, and the listing was moved there as well later. So everything came under a single country's regulatory authority.

It all made sense because you get a full exemption on capital gains and dividends, a very competitive tax rate, and extensive tax treaties globally. So it made sense for a global company to be based in the Netherlands. All that was done under Elkann.

There you have both a long history of the Fiat group, but also, under Elkann, 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 that have listings, they're typically extremely complicated. I think about the Bolloré Group in France, but this one, in the scheme of things, is somewhat straightforward. Obviously, John Elkann is the architect of a lot of that, and today we have what's primarily listed companies inside of this tax-efficient holdco.

I guess it's a good time to present the €40 billion-plus in 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 to 20 years?

2. Exor's Portfolio Takes Shape

Today, if you look at Exor, you've got stakes in listed global companies, and then you have the private investments. It's weighted very much toward the public companies. Seventy percent of gross asset value, and gross asset value is roughly, let's say, €45 billion, is in 4 companies: Ferrari, Stellantis, CNH Industrial, 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, and Clarivate. The rest is in private investments, so a range of investments there. Christian Louboutin and Shang Xia, which are in luxury; The Economist magazine; Welltec, which is a Danish tools company in the energy sector.

They 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 Exor 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, as they say, Ferrari is not a car company. Stellantis, which is the auto company, is only about 10 to 12% of assets.

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?

3. Elkann's Fiat Turnaround

The first thing to say is that when Elkann comes into the thick of the 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 died of cancer in 1997, but it was really only in 2003 and 2004 that Elkann took over. His grandfather died in 2003, and his great-uncle in 2004. So, at the ripe age of 27, he became the sole family representative at the firm, and at that time, both financially and operationally, the company was struggling. They had been through 4 CEOs in 3 years, and for a while it looked like the firm wouldn’t survive. That’s really the context of the start of Elkann, if you will.

The second thing to say is that he had almost the perfect background for what this group needed. He had a very global mindset: born in New York City, schooled in the UK, Brazil, and France, attended engineering school in Turin, completed multiple global internships, and worked for a couple of years at GE, another very global experience. He was fluent in 4 languages, and since 1997, his grandfather had gone out of his way to include him as a silent participant in a lot of business phone calls, later reviewing what was said, et cetera, to give him a vicarious sense of the business. While it was definitely a trial by fire at the start, he also had a lot going for him when he started.

One of the first things he did when he took over was play a role in the selection of Sergio Marchionne 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 a testing company called SGS and made a lot of money for the family, so he was known to them, but it was still a long shot.

Marchionne really went to work at Fiat. First, he managed 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 GM wanted to do was take on a struggling auto business from Fiat, so they paid him $2 billion to cancel that. Sergio then went about almost single-handedly taking control of the car business, cutting costs, and driving the team to execute. The family also had to put in capital to renegotiate bank debt, and from the brink of disaster, they turned it around. By the time the financial crisis hit, Fiat was in a position not just to survive, but actually to merge with Chrysler.

That move to hire Marchionne made a huge difference. Marchionne ended up not only transforming Fiat, but also becoming a legend in the auto industry. He also went a long way toward the education of John Elkann. Even today, Elkann, every opportunity he gets, pays homage to Sergio as both a personal mentor and a transformative figure in his life.

Exor was formally formed in 2009. Fiat itself was transformed from a struggling conglomerate into its constituent pieces. You’ve got Stellantis, the auto business after the merger with Chrysler and Peugeot, CNH Industrial, Iveco, and, of course, Ferrari. In 15 years, the amount of change in Exor has been staggering. If you look at the listed investments, maybe the big 4 in 2009, 3 of the big 4 are no longer in the portfolio, so that tells you the extent of the change.

So if we talk about today’s big 4, which I’ll attribute to Ferrari as the largest, Stellantis, CNH Industrial, and then Philips, which we’ll discuss later, how do you think about those big 4 in the context of the portfolio today? What is important to think about as it relates to each of those independently of one another, and maybe starting with Ferrari?

4. Ferrari Powers NAV Growth

What can you say about Ferrari? I think you have a whole episode on Ferrari in Business Breakdowns. For Exor, 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 Exor.

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.

Exor, as we know, is 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’ll raise that question again. I think that’ll 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, Exor sold about $3 billion worth of shares with the intent of using the proceeds toward both buybacks and additional investments. In a sense, they are signaling a few things, acknowledging that Ferrari has become a huge part of the portfolio.

They like concentration, but I think they’re comfortable with a concentration level of 25% to 30%, and Ferrari had grown much beyond that. They’re also signaling that they find their stock, with an NAV discount, to be hugely undervalued. All things equal, they want to invest in something that they know best, and what do they know better than Exor itself? So there’s an intent to buy back shares while reducing overconcentration in their Ferrari stake. When you talk about listed investments, Ferrari would be the number 1 investment for them.

If you think about their listed investment portfolio in the big 4, they kind of check the box on a handful of industries. Ferrari is an automobile company, but with a luxury overhang. Stellantis is your next company in a cyclical industry, auto. Clearly, the involvement of Sergio Marchionne in changing the trajectory of their auto business is paramount. But today it’s a challenged sector. How do you think about the stake in Stellantis, and what are they doing in order to help improve the outcome and drive NAV at Exor?

Perhaps it’s worth talking about Stellantis, CNH Industrial, and Iveco together because they all came from the conglomerate. They’re all, in their own ways, cyclical and capital-intensive. They are all in some phase of a turnaround, with challenging markets. Iveco is a little bit different because of its defense exposure.

With Stellantis, it is the product of a megamerger 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 through consolidation in the industry. 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 EVs. They have done their best to address the overcapacity. But essentially, it is very clear that there’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 Exor is about 10%. It’s quite low compared to the historic exposures.

Then you have CNH Industrial, which again came from the old Fiat conglomerate. The more cyclical on-highway trucks business was spun out as Iveco, and the agricultural equipment business, which is a higher-quality, less-cyclical business, became CNH Industrial. They are the number 2 global player in that space after John Deere. A lot has happened at CNH Industrial over the last 3 or 4 years to simplify the company and invest in technology, but again, it is facing a cyclical low in its end markets. It’s 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, and defense vehicles, spun off in 2022. The interesting thing is they’re trying to separate out the defense business as a spin-off or a sale. As you can imagine, right now there is a lot of pent-up demand for anything in the defense sector. There is also chatter on M&A for the core business as well, including some potential conversations with the Indian company Tata Motors. There’s a lot more current news around Iveco, but it is a smaller stake for them in terms of share of NAV.

If you look at the 3 businesses, I would say they’re reasonably to cheaply valued businesses facing both idiosyncratic and weakened markets. From a portfolio standpoint, it feels like you’re getting assets that are fairly undervalued, and we will talk about the NAV as a whole and what the stock trades at as a discount to NAV. But in the underlying NAV, with the exception of Ferrari, I wouldn’t call any of the other listed companies overly valued.

To round out the conversation on the listed companies, and we’ll dive deeper into some of them, I know we have left Juventus, Clarivate, and then Philips, which I want to set aside 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 it’s somewhat of an immaterial stake for them.

And then Clarivate, which is an interesting one given that it has very significantly underperformed as a listed company. I’m 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 its recent troubles and valuations would suggest. But you definitely have to ask the question: Economically, does it move the needle in terms of Exor’s chosen metric, NAV per share? It is definitely a “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. The entire board, including the president, had to resign. The president was an Agnelli, 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. 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? 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 Reuters. They serve the academic market, the scientific market, life sciences, intellectual property, and assets around it.

It’s a subscription business. It provides things like literature reviews, competitive intelligence, data on patents, trademarks, et cetera. Now, if you think about where Exor is thinking about going in the future, in places like healthcare and technology, Clarivate is not only 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 Institut Mérieux, other investments in that space, and they all seem to fall in that bucket. So it is quite an interesting investment in the context of the portfolio and where they want to take the portfolio.

I think this is maybe a good point to check in broadly on valuation here. What’s always striking about these publicly listed holding companies is when they trade at 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.

What is the setup here as it relates to their published NAV, the listed interests, and the way the stock trades? And, further, how are they making efforts to close that discount to NAV in a way that is material?

5. The NAV Discount And Capital Allocation

The mechanics of the valuation are super simple. The asset base is dominated by publicly listed companies. A full 70% of assets are 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 NAV, anywhere from 50% to 60%, depending on your assumptions, and you’re going to find the discount quite attractive. So the mechanics of the valuation itself are pretty straightforward, but you have some big questions.

The big question is: For the underlying assets, both the listed ones and the unlisted ones, what are the true valuations for them? But also, what should the discount be? What should the NAV discount be for a publicly listed holding company like this?

Starting with the first question, if you look at the big 4 public assets—Ferrari, Stellantis, CNH Industrial, and 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 at these prices. So that’s something to think about.

The other 3 are all global businesses: Stellantis, CNH Industrial, and 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. Having a NAV discount is part and parcel of being a holding company. There’s no getting away from it. Having said that, in the case of Exor, 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. Hermès would be another example. But if you think about it, a holding company is the exact opposite of a pure-play exceptional business.

I would say the NAV tells you the asset value of today, but for a holding company, it’s hard to tell where it will be 5 years from now. And it appears the market is saying they don’t believe that they can maintain the NAV per share growth seen in the recent past.

The NAV growth at Exor in the last 3 or 4 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 value, own Philips or CNH Industrial selectively, depending on your conviction? That is the debate, really, and it’s a fair debate.

In all this, what I like is how pragmatic Elkann is when he talks about the discount. He’s not defensive or complaining that the market is wrong, but I think he correctly recognizes that the discount is an amazing opportunity for them—an opportunity for Exor to invest in themselves, to invest in something that they know very well, and to buy back their own stock.

The decision this year to trim Ferrari to buy back stock 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 Elkann and the minority shareholders.

Over time, you will see NAV per share growth. You shouldn’t be in it hoping for a narrowing of the discount because that is not in management’s control.

To go a bit deeper on that topic as it relates to their broader capital allocation policy and governance, one of the reasons that holding companies 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 or focus on growing NAV instead of serving the best interests of the family themselves.

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 does the go-forward capital allocation strategy look like, and how do you think about governance as it relates to their minority shareholders?

Capital allocation is the key question here. You have a holding company right now with a really odd mix of assets. What you’re asking is: What will this look like in 5 to 10 years? And that comes down to capital allocation.

There are 1 or 2 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 that are great or potentially will become great. And they measure their success with a very clear metric: NAV per share growth, benchmarked against the MSCI World benchmark, which recognizes that they are 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, was 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: a very strong technical leader, with many patents in sensors and microelectronics. He seemed a very inspired choice, again not from automotive, to lead Ferrari into the EV world.

At the same time, there are also homegrown leaders. Gerrit Marx is now at CNH Industrial. 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 organizations, 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 Elcan when, as I mentioned, the family had to put in more capital to save the company from going down. Their very simple philosophy there is to keep debt between 10% and 20% of the asset base and increasingly keep the mix simple as well: mostly bonds, very little bank debt, well spread out, with a long duration of 5–6 years. That gives them a 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 buying back their own shares. I think they value that way more than trying to optimize their debt level. Essentially, that duality comes down to acting like an entrepreneur, but with a rock-solid balance sheet, and that's how they view the investment journey. 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 that there's potential for some of the unlisted companies to provide some sort of optionality. One thing I'd love to explore further is whether there's anything inside the unlisted portfolio that you think is particularly notable, either from a strategic perspective or from a valuation perspective. The second question is, as the business evolves, what do we think the future looks like? Perhaps we can take that after first discussing what this private portfolio looks like.

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 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, has value. There is also some element of pride in public service, their ability to provide stable, long-term support, and 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 healthcare company involved in a range of things: diagnostics, vaccines, immunotherapy, food safety, and nutrition. It's really a first step for Exor into this world, along with the investment in Philips. There's a lot of alignment with the family-owned culture of 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 Christian Louboutin. Louboutin is a French luxury brand known for 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, 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. It's a 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 form a partnership with Welltec.

They also started an asset management platform, Lingotto, in 2023. It came a little bit out of their relationship with 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, funds of funds, and direct private investments. It's operated independently of Exor. The idea is really to build a wealth asset management platform and attract talent across different styles. 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.

Notably, one of the assets you did not mention is their former reinsurance business, PartnerRe. Notably, they decided to acquire and then divest that business quite quickly. But I'm curious to hear you 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 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 5 or 6 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 a decent-sized investment, with a $9 billion purchase price. I think it's 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 is somewhere with a strong capital base and a 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 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 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 catastrophe 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 and 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. They also developed a more long-term partnership with Covéa to launch their asset management firm. I think that fits in with how Exor operates: 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 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 has 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 reconcile that difference in the future? What do you think John's vision is for Exor in 2035, 2050, and beyond?

6. Exor's Long Term Future

There is a nice quote from Gianni that John Elkann quotes: “Groups like ours typically go through 3 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 and measured, but there is constant refresh and renewal. In pretty much every interaction with investors, John Elkann points out that they're constantly looking to change. Their intention is to renew that asset mix all the time and look for opportunities.

There are 3 sectors that they've highlighted as areas where they want to be for the very long term: healthcare, luxury, and technology. It's a very, very long-duration plan to build knowledge, expertise, and investments in those 3 areas.

Of the 3, 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 majority control of Shang Xia 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. There aren't that many companies that are independent, and if you want to stay in the super-premium end, even fewer. Anytime there is an 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, until 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. Their Exor Ventures business has also begun to mature.

Over the years, they've taken some bets in mobility and some areas of AI. In fact, one of their investments through Exor Ventures is a company called Via. It's in the urban mobility space, essentially optimizing the pooling of multiple passengers for vehicle fleets. Exor invested in 2020, and they own about 9%. Just recently, Via filed an S-1, a confidential filing for an IPO. That's an early example of a success story coming out of Exor Ventures, to add to what we talked about in the private space.

There's lots of optionality there that could be hidden and could play out over the next 5 to 10 years. It's 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 of AI. It's very clear that he has access to the who's who in Silicon Valley. It's still early stages, and it 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 until now. They are very clear on the long-term thesis and the secular need for healthcare. They're especially keen on the healthcare technology side of things: imaging, diagnostics, tools, genomics, and services. Even though they've called out technology as one of the 3 focus sectors, healthcare technology is probably where they're likely to spend and build more expertise and make more investments.

They've already had some significant investments in Philips and Institut Mérieux. Both seem like great investments in themselves and also strategic, giving them a front-row seat in that space. It's interesting if you look at the story at Philips. In hindsight, it would seem obvious why Exor 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, and semiconductors—to a pure-play global health technology company. On top of that, it is also facing difficult end markets and idiosyncratic issues of its own, with a recall of its 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 have now increased it to almost 20%. With board presence, they have an opportunity to be part of that journey. They have the time and 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 and the way the markets are structured. It definitely looks exciting, and we will see how that evolves. As that becomes successful, along with bioMérieux—we spoke about a leading scientific group in that space with a shared ethos of family ownership—in 5 years, Exor 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 and a leader who's opportunistic, doesn't seem afraid to make changes, and takes decisions, it's very hard to come up with a 5-year view, let alone a 10-year view. So who knows what this group looks like in 5 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 5 to 10 years. I think it's 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 collection of assets, today that would be valued at around €180 a share, trading in the market for around €100. 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. CNH and Stellantis 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: 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? Conversely, or alternatively, what are the other lessons that could be learned and applied to businesses or holding companies to improve the operational execution of their businesses?

Following Exor over long periods of time is 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 and waiting on decisions. There's no “on the one hand, on the other hand,” followed by delaying decisions. If you follow Exor, as I have since its 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 or quarterly noise.

But maybe 2 or 3 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 and refresh the portfolio over time. I think that comes from Elkann's initial years with the group: the crisis and the fact that they had to find Marchionne as the CEO on the 4th or 5th attempt within 2 years. What he learned was that if they had stuck with the status quo, they would not have survived.

I think that makes Elkann decisive and willing to change. When CEOs don't work out, there's no hesitation to try something different. Long-term investors tend to have a bias toward no action, sitting on past decisions in the name of being long-term and patient. But investment decisions are not perfect. People decisions are not perfect. Even if they were good decisions 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 toward no action, we should ask if we're hiding behind the long term because we're afraid of uncertainty. We should try to be more decisive and make decisions when we 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. I think this is a great introduction to Exor, and we'll continue to monitor the story and the situation as the business evolves.

Thank you, Zack.