By Jackie Maguire, CEO, Coller IP
Interest in securing value from intangible assets through strategic management of intellectual property has grown considerably in recent years. This is partly because of the growing awareness that typically,up to 80% of most companies’ value* now evolves directly from intangible assets, including intellectual property (IP) – and also because of the rapidly increasing threat from counterfeiting.
The threat to the financial services industry – as well as businesses more generally – from continuing economic uncertainty and increased regulation makes consideration of the strategic use of intangible assets imperative. Some firms are starting to realise that IP is a way to differentiate themselves in this sector and that intangible assets can play a major role in raising funds and finance.
The number of patent application filings in the financial services sector in the US from fiscal years 2002 to 2010 increased from 7,400 in 2002 to 17,231 in 2010 while the number of insurance patents has increased by over twenty times from a rate of around 15 in 2002 to 332 in 2012.**
However, because it can be challenging to manage intangible assets effectively in a business, including determining who is responsible for them, intangible assets are often misunderstood and therefore undervalued on the balance sheet.
Intangible assets can be considered in three main groups.Intellectual Property means protection of your products, services and brand by patents, trademarks, copyright, designs and trade secrets. Intellectual Assets (IA) relate to the people-based assets of a company, including key skills, know-how and processes; the way your people do business. And finally, Intellectual Capital (IC) encompasses the other intangible assets of a company, including relationships, branding, reputation and contracts which provide the route to market (see diagram).
As with other assets, IP can be valued, bought, sold or leased. Many companies have significant intangible assets not currently recorded on their balance sheets. These can include trade marks, domain names, websites, order books, customer lists, copyright in training materials, software, and patents. In many cases these are tradable commodities with an associated cash value. In addition, intangible assets can allow (in certain circumstances) for the trustees of a pension fund to purchase and lease back an asset from the company releasing cash to the company and providing a return for the pension fund. It is possibly a strategy, too, for retirement, since patents can (in certain circumstances) continue to provide licensing revenue.
Many organisations are struggling to secure capital to invest in the growth of the business and many pension funds are struggling to make good returns on their investments so using IP can be a good solution. This option is still not widely realised.
As Clifton Asset Management says,
“Around 40 per cent of the UK’s SME owners have funds in pension schemes which could be immediately deployed through IP and pension-led funding. This would create an estimated cash injection of £100 billion into the UK’s SME economy.”
Some companies may use IP-based pension-led funding as their only source of business finance while others find that it works well alongside traditional lending options. Organisations such as Clifton Asset Management work closely with bank advisors to encourage them to add pension-led funding to their portfolio. Such companies can help organisations comply with HMRC rules on utilising an independent IP valuation in order to arrange a lease with a pension fund.
To quote Clifton Asset Management’s sister company, Morgan Lloyd, “Investment in Intellectual Property can create an alternative type of business funding whilst creating a safe haven for tax efficient growth. By transferring Intellectual Property into a SIPP, it is protected from creditors and competitors and the client’s pension fund also receives a substantial investment return for the usage of the Intellectual Property.”
In order to use IP assets as collateral to obtain finance, organisations need to be able to prove they have a cash value which is lasting and with a realisable market value. All this depends on a properly established valuation. While it may seem obvious that organisations selling or acquiring a company or portfolio, or those wanting to use IP as part of a pension fund should establish what intangible assets exist, whether they are live and valid, their value, and whether they are fully protected in all jurisdictions, unfortunately this does not always happen as well as it could.
Even if the assets have been included on a balance sheet, IP is often not valued accurately enough, in part because it is not always straightforward to do so. Identifying the intangible assets usually involves carrying out an audit to identify them and working out which of them are of significant value. A number of different approaches are used to measure value. Examples include the cost approach, the market approach, the income approach, or a combination of each.
Following an audit, IP specialists will undertake a landscaping exercise in order to understand the intangible assets that are of value. This includes assessing the company’s position vis a vis existing or potential competitors, as well as identifying possible opportunities for further exploiting any IP.
Not all IP assets are appropriate for raising funds, and a valuation and assessment process may reveal that it would be better to use IP assets deemed as not core to the business to raise cash, for example by selling them.
The monetary value of the assets will depend on how securely the assets have been protected. It is important therefore that protection is as robust as possible.
Business Action To Stop Counterfeiting and Piracy (BASCAP)***claims that the total global economic value of counterfeit and pirated products is as much as $650 billion every year, with international trade accounting for more than half of counterfeiting and piracy estimated at $285 billion to $360 billion.
Research from The Intellectual Property Crime Group (IPCG) has revealed that 40% of businesses surveyed took no practical action such as trade mark registration or employee training to ensure their IP and that of others is protected.
**** It is important to consider the protection of all relevant trade marks, which can of course include words, logos, sounds, colours, gestures, brand names and slogans—in fact, any distinctive feature which can be represented on paper and which can distinguish the goods or services of one business from those of another. They can even consist of 3D shapes.
Patents that protect the functionality of new inventions – including processes or devices – can add real value.
In addition, copyright, registered designs, database rights, and trade secrets can also play an important role in protecting intangible assets.
Intellectual Property is a powerful, flexible and effective business asset, and like other assets it needs to be understood, protected, and reviewed regularly. It needs to be used judiciously – using it as a financial vehicle for example may not be right for all organisations depending on their circumstances. But applied appropriately, the outcome can be highly beneficial to all parties.
*Figure quoted in ‘Making the Intangible Tangible’, a report prepared by PWC for the Australian Copyright Council
**Source: United States Patent and Trademark Office
*** Source: Estimating the Global Economic and Social impacts of Counterfeiting and
Piracy – A Report commissioned by Business Action to Stop Counterfeiting and Piracy (BASCAP) February 2011
****Source: IP Crime Group 2008/9 Crime Report -http://www.ipo.gov.uk/ipcreport08.pdf
Coller IP – www.collerip.com – specialises in helping organisations protect, understand, value and commercialise all aspects of intellectual property/intellectual capital. The CEO, Jackie Maguire, has extensive experience in IP and is a founder of Coller IP. In 2009 she was listed by Intellectual Asset Management magazine as one of the top 300 IP strategists worldwide – and in the top ten in the UK and each year since she has been voted once again into the top 300. Her founding partner, Jim Asher leads Coller IP’s valuation practice.
Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations
White Paper Sees Increase in Managers Outsourcing Middle and Front Office Functions to Achieve Optimal Business Structures
According to a white paper published today by Northern Trust (Nasdaq: NTRS), investment managers of all sizes and strategies have been prompted to undertake a comprehensive review of their operating models as a result of the Covid-19 pandemic which has accelerated existing trends that are compounding cost pressures. This has led increasing numbers of managers to outsource in-house dealing and other functions, such as foreign exchange and transition management, hitherto seen as core.
While cost savings remain a core driver, and indeed are one outcome of outsourcing, costs are no longer the only focus. Far from being solely a defensive reaction to increased pressure on margins, the white paper (‘From Niche to Norm’) describes outsourcing as part of the target operating model, or moving toward the ‘Optimal State’ for many investment managers, and explains how the focus “has expanded to the variety of other potential benefits offered – enhanced capabilities, improved governance and operational resilience.”
Gary Paulin, global head of Integrated Trading Solutions at Northern Trust Capital Markets said: “The pandemic has challenged a range of operational assumptions. Working from home has, for example, questioned the need for a portfolio manager to be in close proximity with the dealing desk. Previously considered essential, the pandemic has effectively forced firms to ‘outsource‘ their trading desks to remote working setups and the effectiveness of this process has disproved the requirement for proximity, in turn, easing the path to third-party outsourcing. Many investment managers are actively considering outsourcing to a hyper-scale, expert provider as a potential, cost efficient solution – one that maintains service quality and, hopefully, improves it whilst adding resiliency.”
Northern Trust’s white paper compares outsourced trading to software-as-a-service stating: “instead of carrying the cost and complexity of running an in-house solution, firms move to an outsourced one, free up capital to invest in strategic growth and move costs from a fixed to a variable basis in line with the direction of travel for revenues.”
Guy Gibson, global head of Institutional Brokerage at Northern Trust Capital Markets said: “The opportunity to deploy capital to build new fund structures, develop new offerings, focus on distribution and enhance in-house research has been taken up by several of our clients to the benefit of their investment approach, and to the benefit of their investors. Additionally, in the last two months alone, many firms have recognized that outsourcing to a well-capitalized, global platform has enabled them to take advantage of cost-contained growth opportunities in new markets.”
A further development, which has echoes of the journey the technology industry has already undertaken, is the move towards ‘whole office’ solutions, which represent the next potential wave in outsourcing.
According to Paulin; “recently we have observed a growing number of managers wanting to outsource to a single, hyper-scale professional service provider who can do everything, everywhere. This aligns with Northern Trust’s strategy to deliver platform solutions for the whole office, serving our clients’ needs across the entire investment lifecycle.”
Integrated Trading Solutions is Northern Trust’s outsourced trading capability that combines worldwide locations and trading expertise in equities and fixed income and derivatives with access to global markets, high-quality liquidity and an integrated middle and back office service as well as other services, such as FX. It helps asset owners and asset managers to meaningfully lower costs, reduce risk, manage regulatory compliance and enhance transparency and operational efficiency.
How are investors traversing the UK’s transition out of lockdown?
By Giles Coghlan, Chief Currency Analyst, HYCM
Just when we thought we had overcome the initial health challenges posed by COVID-19, the UK Government has once again introduced lockdown measures in certain regions to curb a rise in new cases. This is happening at a time when the government is trying to bring about the country’s post-pandemic recovery and prevent a prolonged economic downturn.
This is the reality of the “new normal” – a constant battle to both contain the spread of the virus but also avoid extended economic stagnation.
Of course, no matter how many policies are introduced to spur on investment, traders and investors are likely to act with caution for the foreseeable future. There are simply too many unknowns to content with at the moment.
To try and measure investor sentiment towards different asset classes at present, HYCM recently commissioned research to uncover which assets investors are planning to invest in over the coming 12 months. After surveying over 900 UK-based investors, our figures show just how COVID-19 has affected different investor portfolios. I have analysed the key findings below.
At present, it seems that by far the most common asset class for investors is cash savings, with 78% of investors identifying as having some form of savings in a bank account. Other popular assets were stocks and shares (48%) and property (38%). While not surprising, when viewed in the context of investor’s future plans for investment, it becomes evident that security, above all else, is what investors are currently seeking.
A third of those surveyed (32%) said that they intended to put more of their wealth into their savings account, the most common strategy by far among those surveyed. This was followed by stocks and shares (21%), property (17%), and fixed interest securities (17%).
When asked about what impact COVID-19 has had on their portfolios throughout 2020, 43% stated that their portfolio had decreased in value as a consequence of the pandemic. This has evidently had an effect on investors’ mindsets, with 73% stating that they were not planning on making any major investment decisions for the rest of the year.
Looking at the road ahead
So, it seems that many investors are adopting a wait-and-see approach; hoping that the promise of a V-shaped recovery comes to fruition. The issue, however, is that this exact type of hesitancy when it comes to investing may well slow the pace of economic recovery. Financial markets need stimulus in order to help facilitate a post-pandemic economic resurgence, but if said financial stimulation only arrives once the recovery has already begun, the economy risks extended stagnation.
It seems, then, that there are two possible set outcomes on the path ahead. The first is a steady decline in COVID-19 cases, then an economic downturn as the markets correct themselves, followed by a return to relative economic stability. The second potential outcome is a second spike of COVID-19 cases which incurs a second nationwide lockdown – delaying an economic revival for the foreseeable future. At present, the former of these two scenarios is seemingly playing out with economic growth and GDP steadily increasing; but recent COVID-19 case upticks show that it’s still too soon to be certain of either scenario.
A cautious approach, therefore, will evidently remain the most common investment strategy looking ahead. But investors must remember that, even in the most uncertain times, there are always opportunities for returns on investment. Merely transforming a varied portfolio into cash savings risks a long-term decline in value.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.
Hatton Gardens 5 top tips for investing in Diamonds
By Ben Stinson, Head of eCommerce at Diamonds Factory
Investing in diamonds can be extremely rewarding, but only if you know what to look for. For investors who lack experience, finding your diamond in the rough can be quite daunting.
For even the most beginner of diamond investors, the essentials are fairly obvious. For instance, you need to ask yourself will the diamond hold its value over time? What’s the overall condition of the stone and the jewellery? Is there history behind the item in question?
Although common sense plays a big part in investing, people often need insider tips and tricks to go from beginner to expert. Tony French, the in-house Diamond Consultant, at Diamonds Factory shares his professional knowledge on the 5 most important things to look for when investing in diamonds.
1: Using cut, weight and colour to determine value
Firstly, consider the shape, colour, and weight of your diamond, as this can play a pivotal role in guaranteeing growth in the value of your item. Granted, investing trends change with time, but a round cut of your diamond will almost always be the most sought after. The cut of your diamond is incredibly important, as it can influence the sparkle and therefore, the overall value. It’s a similar story for the intensity of some colours, such as Pink, Red, Blue, Green etc. Concerning weight, the heavier (bigger) stones will generally increase in value by a bigger percentage. Collectively these factors also contribute to the supply and demand aspect, which will determine their high price, and will ensure your item is re-sellable.
Looking for significant value? Well, aim to own jewellery or diamonds that come from an important public figure. If you’re lucky enough to own a piece that has significant history, or was owned by a celebrity or person of interest, it’s an absolute must to have concrete evidence of this. Immediately, this proof will increase an item’s overall value, and there’s a good chance the stardom of your item might drum up interest amongst diehard fans, increasing the value even further…
Equally, it’s possible to proactively bring provenance to unique diamonds of yours. For instance, you can offer to loan bespoke, or unusual pieces for film, theatre, or TV performances – then it can be advertised as worn by xyz.
3: Find the source
Establishing your diamond’s source is one of the most important things you can do when investing in diamonds. If you’re starting out, try to purchase diamonds that have NOT been owned by too many people, as the overall value of the diamond will reflect multiple ownership. Alternatively, I’d always recommend buying from suppliers like ourselves or other suppliers and retailers, who buy directly from the people who have had them certified.
Primarily, this will allow you to have a greater degree of transparency, which is crucial when buying such a valuable item. Next, you should immediately see an increase in value of your diamonds, as identifying a source will allow traceability and therefore, market context.
Linked closely with my previous point, is the requirement to ensure that your diamonds are certified by a credible lab, and you have the evidence to prove so (a written document with specific grading details about your diamonds) – this will remove any doubts of impropriety.
It’s essential to remember that not all labs are the same, and many labs are better than others. Both the AGS (American Gem Society) and GIA (Gemological Institute of America) have great reputations and are world renowned. I’d recommend doing your own research into the labs, and when you’ve found the pieces that you’d like to invest in, then make an informed decision based upon your findings. Ultimately, proving certification will make your stones easier to insure, and deep down, you can have peace of mind knowing you have got what you have paid for.
Don’t forget to keep this paperwork in a safe location as well – you’d be surprised how many people we’ve met who have lost, or forget where they’ve placed it.
5: Patience is a virtue…
If the market is strong, it might be tempting to look for an immediate sale once you’ve purchased a high value item. However, I suggest holding onto your diamonds for some time before even thinking about selling. More often than not, an item is more likely to increase in value over a few years than a few days – try and wait a little longer!
Equally, I would encourage having your diamonds, or jewellery professionally valued regularly. If you don’t have the knowledge to make a rough judgement on how much your pieces are worth, a consultant or expert can provide both a valuation, and contextualise that amount in the wider market. From there, you should be empowered with the knowledge to decide whether to keep or sell.
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