Intangibles

Intangibles as an investment-grade asset class are not traditionally categorized alongside equities, bonds, or fixed income. However, investors and financial markets increasingly recognize intangibles as a distinct asset class with investable instruments. Below are some ways intangibles are structured to fit within investment-grade categories:

1. Intangibles as a Recognized Asset Class in Investment

Intangibles do not yet have a widely recognized standalone investment-grade asset class like equities or bonds, but they are often embedded in various investment structures:

2. Investment-Grade Intangible Asset Instruments

While intangibles lack a traditional asset class label, investable instruments exist, particularly in securitized and structured finance markets:

(A) Intellectual Property (IP) Securitization

• Patent-backed bonds
  • Companies securitize patents for financing (e.g., pharmaceutical companies using drug patents as collateral).
• Music royalty securitization
  • Artists and rights holders issue bonds backed by future streaming and licensing revenue (e.g., David Bowie’s “Bowie Bonds”).
• Film & TV IP-backed debt
  • Studios securitize future earnings from franchises and media libraries (e.g., Disney licensing Star Wars rights).

(B) Royalty-Based Investments

• Royalty trusts & funds
  • Investors receive income from licensing revenue (e.g., biotech royalties, software licensing).
• Pharmaceutical royalty investments
  • Hedge funds and PE firms invest in future drug sales rights.
• Music & content IP investments
  • Companies like Hipgnosis Songs Fund acquire song catalogs for royalty streams.

(C) Data & Digital Asset Monetization

• Data-backed loans
  • Firms use proprietary data as collateral for structured financing.
• Ad-tech and algorithmic IP monetization
  • Google, Meta, and AI companies monetize intangible assets through advertising and AI-driven automation.

3. Intangibles and Institutional Recognition

• S&P 500’s shift to intangible assets
  • Over 90% of the S&P 500’s market value now comes from intangible-driven companies.
• Nasdaq and Private Equity (PE) focus:
  • PE firms are increasingly targeting companies with strong intangible asset portfolios.
• Institutional adoption:
  • Pension funds and sovereign wealth funds are investing in IP-based funds and securitized revenue streams.

4. Types of Intangible Asset Classes

These are the types of intangibles that can be identifiable, tradable, consumable.

identifiable: can be separated from other assets
tradable: have control and easily to change ownership
consumable: future economical benefits, can calculate discounted cash flow

1. Intellectual Property (IP)
   • Patents (e.g., pharmaceutical patents, tech patents)
   • Trademarks (e.g., Coca-Cola’s logo)
   • Copyrights (e.g., music, software, books)
   • Trade Secrets (e.g., KFC’s secret recipe)
2. Brand Equity & Reputation
   • The goodwill of a company
   • Brand-driven acquisitions (e.g., LVMH buying luxury brands)
   • Consumer loyalty (e.g., Apple, Nike)
3. Customer & Supplier Relationships
   • Contracts & licensing agreements
   • Distribution networks (e.g., Amazon’s logistics partnerships)
4. Data & Digital Assets
   • User data (e.g., Meta’s Facebook user base)
   • Proprietary algorithms (e.g., Google’s search ranking system)
   • Data monetization (e.g., selling user data insights)
5. Human Capital & Organizational Knowledge
   • Expertise within a company (e.g., R&D talent)
   • Trade knowledge & unique business processes
   • Human capital arbitrage (e.g., investing in AI startups with strong R&D teams)
6. Licensing & Franchising Rights
   • McDonald’s franchise rights
   • Software licensing (e.g., Microsoft Office subscriptions)

Investing in Intangibles as an Asset Class

Intangibles is not yet standalone asset class but should be treated as first priority for managements as an Investment-Grade Asset Class

• Intangibles are not yet asset class in the traditional sense but are increasingly treated as a financial&accounting asset class, particularly in securitized markets, private equity, and alternative investments. Many investors and private equity firms recognize intangibles as a crucial asset class, though they are harder to quantify compared to tangible assets.
• Institutional investors are actively allocating capital toward intangibles (IP, data, royalties), often in structured or private market formats.
• In the future, intangibles may evolve into a distinct, recognized investment-grade asset class like equities and fixed income.