Intangible Assets as Financial Instruments

The Structured Finance Parallel for Intangible Assets

In the 1980s and 1990s, the capital markets faced a problem that looks remarkably similar to the one we face with intangible assets today.

Banks held portfolios of illiquid assets — mortgages, auto loans, credit card receivables — that had clear economic value but could not be efficiently traded, priced, or used as collateral in their raw form. The assets were real. The cash flows were predictable. But the financial infrastructure to unlock their value as tradeable instruments did not yet exist.

Securitisation solved that problem. By pooling assets, standardising their characteristics, establishing rating methodologies, and creating tranched securities backed by the underlying cash flows, the financial engineering community created a market where none had existed. The result was an explosion of liquidity that transformed corporate finance.

I spent much of my career in the middle of that transformation. At N M Rothschild and Sons, I worked on cross-border tax leveraged leasing of ship and aircraft assets. At GEC Finance, I was involved in creating triple-A default insurance products for asset-backed securities in international bond markets. In each case, the fundamental challenge was the same: how do you take an asset class that is economically valuable but financially opaque and make it investable?

Intangible assets are in precisely that position today. They represent over 90% of S&P 500 market value. They generate the majority of economic returns for knowledge-intensive businesses. Yet they remain financially opaque — invisible on balance sheets, excluded from collateral frameworks, and valued only episodically during M&A transactions or impairment testing.

What Structured Finance Got Right

The success of asset-backed securitisation rested on four pillars, each of which has a direct analogue in the intangible asset domain.

Standardised Asset Classification

Before assets could be pooled and securitised, they had to be classified using consistent taxonomies. A residential mortgage-backed security required standardised definitions of loan-to-value ratios, borrower credit quality, property types, and geographic concentration. Without standardised classification, neither pricing nor risk assessment was possible.

Intangible assets need the same treatment. A taxonomy that consistently categorises human capital, intellectual property, data assets, customer relationships, organisational capital, innovation capacity, and supplier relationships — and that applies consistent definitions across companies and sectors — is the prerequisite for any broader financial infrastructure.

Reliable Valuation Methodologies

Securitisation required reliable, repeatable valuation methods that could be applied at scale. Rating agencies developed methodologies for assessing default probabilities, recovery rates, and cash flow waterfall mechanics. These methodologies were imperfect — as the 2008 financial crisis demonstrated — but they provided the analytical foundation that made the market possible.

For intangible assets, the valuation methodologies exist. The income approach, cost approach, and market approach are well-established in the professional valuation community. The International Valuation Standards Council has published guidance. What is missing is the infrastructure to apply these methodologies continuously, at scale, and with sufficient standardisation to enable comparison across companies and sectors.

Transparent Reporting and Disclosure

Asset-backed securities required detailed disclosure of underlying asset characteristics, performance data, and structural features. Investors needed to see through the security to the assets beneath it. This transparency was essential for price discovery and risk assessment.

The intangible asset equivalent is supplementary reporting that goes beyond what IAS 38 requires. Companies that provide structured, consistent disclosure of their intangible asset profiles — categorised by type, valued using established methodologies, and tracked over time — create the transparency that institutional investors need to incorporate intangible value into their investment decisions.

Institutional Acceptance

Securitisation only scaled once institutional investors — pension funds, insurance companies, sovereign wealth funds — accepted asset-backed securities as a legitimate asset class. This required regulatory clarity, rating agency endorsement, and a track record of performance data.

Intangible assets are on the cusp of this institutional acceptance. The OECD, the IASB, and various national regulators are examining how intangible assets should be measured and reported. The EU's Corporate Sustainability Reporting Directive is creating disclosure requirements that overlap with intangible asset categories. The momentum is building, but the market is waiting for the first movers to demonstrate that intangible asset data is reliable, comparable, and decision-useful.

What This Means in Practice

The implications for companies, investors, and financial markets are significant.

For companies seeking capital: If your most valuable assets are intangible — and for most knowledge-intensive businesses, they are — then your ability to raise capital is constrained by the market's inability to see those assets. The companies that invest in measuring, valuing, and reporting their intangible asset profiles will access capital more efficiently and at better terms than those that do not.

For institutional investors: The ability to assess intangible asset quality across potential investments will become a core analytical competency. Fund managers who develop frameworks for evaluating intangible assets systematically will make better selection decisions and achieve better exit outcomes than those who continue to rely on financial metrics alone.

For the capital markets infrastructure: The market needs standardised intangible asset data in the same way that the fixed income market needed standardised loan data. When that data becomes available — consistently categorised, reliably valued, and continuously updated — it will enable new forms of analysis, benchmarking, and potentially new financial instruments.

The Regulatory Catalyst

Regulatory change is often the catalyst that transforms a theoretical market opportunity into a practical one. In securitisation, the Basel capital adequacy framework created incentives for banks to securitise assets. In sustainability reporting, the CSRD created disclosure requirements that are driving investment in measurement infrastructure.

For intangible assets, several regulatory developments are converging.

Converging Regulatory Forces

The first jurisdictions to establish clear, mandatory intangible asset disclosure frameworks will attract capital. Companies operating in those jurisdictions will have better access to funding. And the valuation and measurement firms that position themselves as the infrastructure providers will establish durable competitive positions.

Building the Infrastructure for Intangible Asset Markets

The financial engineering that created asset-backed securities from illiquid loan portfolios took approximately a decade to mature. The intangible asset equivalent will follow a similar trajectory, but with several advantages. The valuation methodologies already exist. The academic research base is substantial. The regulatory appetite for change is growing. And the technology to measure intangible assets at scale — continuously rather than episodically — is now available.

What is needed is the first generation of companies and investors who are willing to adopt intangible asset measurement as standard practice, to generate the performance data that demonstrates its value, and to push the institutional infrastructure forward.

Explore the Intangible Asset Valuator to see how continuous, structured valuation works in practice.

This is the tenth in a series of articles on intangible asset valuation and growth accounting. Read the complete guide: The Complete Guide to Intangible Asset Valuation