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A trend of avoiding AI investments is gaining momentum on Wall Street, aligning with the strategy of family offices to allocate capital to traditional, physical economy assets. While not as flashy as high-flying AI startups, businesses like auto dealerships and fisheries offer operational stability and robust cash flows, making them attractive to family offices. Mark Sotir, President of the EGI Group, which is part of the late billionaire Sam Zell's family holdings, explained to CNBC why this private investment firm is heavily betting on traditional, physical economy companies.
Aerial view of a fish farm on the U.S. East Coast. The Equity Group Investments (EGI) firm, part of the late billionaire Sam Zell's family portfolio, holds assets including a John Deere equipment dealership, a bluefin tuna fishing operation, and a pedestrian bridge connecting San Diego to Tijuana International Airport. Mark Sotir, President of EGI, stated that these seemingly disparate assets share a core rationale: a focus on the traditional, physical economy, which is less susceptible to disruption from artificial intelligence and other technological waves. "Our capital has a longer investment horizon than most private equity firms. When investing with a 10- or 12-year view, you first need to pick industries and businesses that will be around for a long time," he said. "That's why we avoid certain tech sectors and startups. It's not that we don't like those assets, but it's simply impossible to predict where software will be in ten years." Earlier this year, a trend emerged on Wall Street to avoid AI investments, dubbed the HALO strategy—Heavy Asset, Low Obsolescence risk. Sotir noted that family offices in the private markets have long practiced this logic: with generational wealth transfer as an investment goal, they place particular value on the stable cash flows provided by the traditional, physical economy. Concurrently, economic uncertainty and tax reforms have further enhanced the investment appeal of these asset-heavy businesses. Sotir believes that asset-heavy industries often deter traditional private equity firms seeking quick 3-to-7-year exits, thereby creating opportunities for family offices to acquire assets at discounted prices. "The market chases capital-light models, but I would ask, if you're paying a premium for being capital-light, where is the advantage?" he stated. The continuation of bonus depreciation provisions in the new U.S. tax bill provides a significant benefit to owners of such physical businesses: the full cost of qualifying assets like machinery, equipment, and vehicles can be deducted in the first year they are placed in service. Brian Hans, Head of Tax Strategy at UBS's High Net Worth Planning division, said, "This policy provides a substantial tax benefit, and the impact is significant. Today, when family offices invest, they proactively engage in tax planning upfront, calculate after-tax returns, and use that as a key basis for investment decisions." Hans added that if the investment qualifies as an active trade or business, the depreciation can also be used to offset taxable income from other active investments like stocks; for wealthy families holding large portfolios of appreciated stock, this benefit is extremely valuable. Joe Mowrey, Head of Automotive Dealership Investment Banking at Stephens Inc., noted that the automotive and equipment dealership industry can fully leverage the bonus depreciation benefits while also offering the stable cash flows that family investments seek. "The logic is simple: they prefer stable income streams that come with tax advantages," Mowrey said. He mentioned that while inflation and economic fluctuations can dampen consumer purchasing power for vehicles and equipment, demand for parts and repair services remains resilient, with high profit margins. "This type of spending isn't discretionary; it's a necessity. People still need to commute to work and take their kids to school. The demand doesn't disappear." Natural Barriers in Physical Industries Sotir stated that while traditional, physical economy businesses are not entirely immune to industry disruption, they often possess geographical barriers that naturally limit competition. For instance, EGI's John Deere and Kenworth dealership franchises are protected by franchise agreements, preventing the emergence of same-brand competitors in the surrounding area. The firm's bluefin tuna farming and fishing operations in Baja California face extremely high barriers to entry due to fishing quota restrictions. Unlike traditional private equity firms pressured by fund deployment deadlines, EGI, backed by family capital, is not in a hurry to deploy funds, completing only one or two deals per year on average. Currently, many business owners, pressured by factors like tariffs and inflation, are proactively approaching them seeking sale opportunities. "The prevailing uncertainty in the market has, somewhat unexpectedly, become an investment opportunity for us," Sotir said. He is also optimistic about the agriculture sector: while farm operations are generally under pressure with rising costs for fertilizer and fuel, EGI has the patience to hold assets long-term and wait for returns. "When the market is generally cautious about the agriculture sector, that's precisely the best time for us to enter and acquire. Even if we don't see appreciation in the first two or three years, it's fine. As long as the long-term value is certain, we have the time to wait."
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