How Asset Managers Value Their Relationships With Institutional Investors

Deep in SEC filings, institutional investor relationships are reported as intangible assets.

Bloomberg Photos

Bloomberg Photos

Can you put a price tag on relationships between asset managers and institutional investors? Experts on accounting practices for mergers and acquisitions say yes.

Following the late December announcement that Owl Rock and Dyal Capital Partners would merge, forming Blue Owl Capital, the special purpose acquisition company involved in the deal made a regulatory filing detailing terms. Nestled within the lengthy document was a list of the company’s intangible assets, which included a line item called “institutional investor relationships.” The valuation? $191.8 million.

“The notion of valuing relationships is something that’s very common,” according to a source with knowledge of the deal. A quick search of asset manager’s SEC filings proves this out: State Street Corp. and BlackRock each put a price tag on relationships with clients, and they’re not alone.

This is a practice exclusive to mergers and acquisitions, according to tax and accounting expert Robert Willens, who spoke with Institutional Investor by phone.

In other words, unless a company has made an acquisition, it cannot include these relationships as intangible assets on its balance sheet. These relationships remain on a company’s balance sheet after an acquisition, and are then amortized, or gradually reduced over the years.

This accounting practice comes late in a deal-making process, once a purchase price is already agreed upon.


“We’ve agreed on the price, let’s figure out what the value now is,” the source explained by phone. “When the valuation is struck, no one is going into the specific intangible relationships.”

That part comes later, after the acquirer has accounted for the target company’s tangible assets like equipment, cash accounts, and marketable securities, according to Willens. The remainder of the purchase price is assigned to so-called intangibles, like technology, trademarks, and non-compete agreements.

In banking, intangibles may be core customer deposits. Those accounts are the “stickiest,” as the source called it — the ones that will stick around for a long time. In asset management, relationships and management agreements are frequently included as intangibles, Willens noted.

This then begs the question: how does one value a relationship? Contracts and projections for how long a client will stick around certainly play a role. But it also comes down to the price paid for the company.

[II Deep Dive: How Owl Rock, Dyal Decided to Merge Via a SPAC — and What’s Next for Blue Owl]

“The dollar amount is a bit of a red herring,” the source said.

Willens agreed. He said that there are two types of intangible assets: those with a definite life, and those that exist forever. For those with a definite life, a company slowly removes them from its balance sheet as their value depletes. This is the case with customer relationships.

Meanwhile, trademarks and trade names have indefinite lives, Willens said.

“Even though there clearly are customer-based intangibles, chances are they’re understated because there’s an accounting incentive to do so,” Willens said. That is, those relationships with customers could be worth more than a company estimates on its balance sheet.

The source noted that in the end, the process of valuing a relationship is a qualitative one, rather than an exact science. Doing so is important though, they added.

“These businesses are only as good as their clients,” the source said. “These relationships are basically all there is. If you don’t have client relationships, there’s nothing to do.”

A spokesperson for Blue Owl declined to comment.