Two very interesting pieces of research caught my eye last month. One had to do with the attitude of millennials towards investing and the other with their pre-marital agreements.
They are making pathbreaking decisions on both fronts. Let me explain why. When the forty pluses (or thereabouts) talk about investing, the key assets they talk about are stock market, real estate, maybe mutual funds and some debt. Very few also talk about art or private equity. But the millennial seems to ignore, even reject, all of the above.
According to one study, investment means very different things to them. Built on the notion that you don't carry what you buy once you leave for good, they say they want to invest in experiences. So a fat bonus does not get them splurging on a BMW, a new villa or stocks. They want to learn scuba diving in the Maldives or live in a reservation. They want to prepare for and run a marathon in Ladakh or learn bread making with the Franciscan monks.
Now what has this got to do with their wedding plans. (I was actually surprised that they had any affinity towards that institution at all). A study that looked at lawyers in the US suggests that millennials have a very different take on pre-nuptial agreements. An increasing number of pre-nups among millennials have little to do with the partition of fixed assets. What they want to protect most are marketable ideas. So in a nutshell, if John and Mary get married, and they plot a start-up which didn't see the light of day before they parted ways, the agreement would have outlined how they will deal with the idea and its monetisation, rather than lay down the rules for splitting up the house or jewellery.
Think about these two dramatic generational shifts and both make perfect sense. One scoffs at the manic need to collect and hoard stuff. The other smartly focuses on what is of real value in this day and age.
Both studies converge on one notion. That the millennial clearly bets on his intangible assets. She is evidently smarter than most organisations one reads about. She knows that experiences and ideas are far more valuable and fulfilling than anything in the bank locker.
The millennials have instinctively honed in on what matters. Even today most commercial organisations are yet to recognise, leave alone ring-fence or govern, their intangible assets. At the cost of repetition, I continue to be surprised at how managements consistently ignore the assets that dominate the value of the firm. The evidence available overwhelmingly suggests that most of the value of a firm lies outside its financial statements. Whether we look at acquisition pricing or market capitalisation, book value will never be more than a third of either.
This is in spite of what we have learned empirically, from corporate performance data. How does any Mahindra company raise large amounts of debt at competitive rates without the group pedigree at play? Which asset does KFC use to open new franchises? In fact, brands consistently score over cash as incubation capital.
Quarter on quarter boards will ask two big questions: whether we have the innovation engine to stay ahead of the market (ideas) and whether we enjoy the buying customer's confidence to sustain high demand for our business( brand)? We already know that businesses that lag on either are risky assets. If you don't believe me, at least listen to the millennial.
RAMESH JUDE THOMAS
President & chief knowledge officer, EQUITOR Value Advisory
