Living in an immaterial world

Stewart Robertson, Senior Economist at Aviva Investors, comments on the rising stock of invisible assets.

Stewart Robertson, Senior Economist

Stewart is responsible for economic research and analysis of the UK and main European markets at Aviva Investors. Before joining us, he specialised at Lombard Street Research as a UK economist, and held positions at Coopers & Lybrand and Unilever. Stewart has a BA (Hons) in Economics from Liverpool University and an MSc in Economics from the London School of Economics and Political Science. 

Investment in invisible assets such as data and design is now bigger than in physical things such as machinery and factories in many rich economies, including the US, the UK and much of Western Europe. But what does this mean for companies, markets and economies? 

Picture a gym. You’ll probably imagine a room cluttered with dumbbells, running machines and yoga mats. But one of the most influential players in the gym industry owns hardly any solid assets at all.

In the mid-1990s, New Zealand-based Les Mills International created Bodypump, intensive workout routines synched to music. New cheap video technology meant the company could expand rapidly. They filmed routines and sent them to instructors beyond New Zealand, who had completed an online course to get a Bodypump license. 

Bodypump now has four million participants a week across 55 countries.

The value of this lucrative business lies in a mixture of elusive things: marketing savvy, intellectual-property rights, music-royalty agreements and a flair for high-tempo choreography. It has been able to grow far more quickly than a traditional gym, which would need to stockpile more weights and cross-trainers – more gyms – to attract more paying customers.

Bodypump reflects a wider trend. Across different sectors and countries, companies are investing in unseen assets such as design, data and intellectual property. 

The rise of the asset-light

Growth at amazing speed and scale.

As websites and apps replace shops and offices, asset-light firms such as Uber and Airbnb are outpacing their rivals.

Amazon, Facebook and others are using the unseen forces of data and artificial intelligence to grow at an amazing speed and scale.

We have seen economic change throughout history. Think railways supplanting canals, computers replacing typewriters. What makes this latest transition significant is that invisible assets are difficult to reduce to figures on a spreadsheet. It is hard to count what you can’t see.

This problem is compounded by the fact many invisible assets are what economists call ‘public goods'. Millions of people can use them at the same time so who really owns them?

How do you value and protect invisible assets?

Invisible assets give investors a new problem: how do you judge the true value of the unseen and the unowned? 

Take Netflix. As of 31 December 2017, the firm said that it owned property, plants and equipment worth $319 million. Yet the stock market values the company at almost $150 billion.

The difference lies in the company’s invisible assets – brand value, content library, recurring subscriptions and vast stores of data on its billions of users.

For insurers, too, unseen assets present new questions. How best to run their own increasingly data-rich businesses? How best to insure businesses like Bodypump, whose needs extend beyond buildings, contents, and people insurance? 

Ultimately, there are few hard and fast rules for navigating the intangible economy. The landscape is changing fast, and the old waypoints may no longer be a useful guide. One thing is certain: there is no going back. For better or worse, we are living in an immaterial world.


Rob Davies

James Whiteman

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