Those in the know understand that both qualitative and quantitative factors must be evaluated when estimating enterprise value. The list of appraisal considerations is too long to address in any one discussion. Suffice it to say that one should understand, measure and benchmark multiple facets of an organization’s business such as production processes, distribution channels, sales infrastructure and customer service. A clarity about the industry in which a business operates is likewise essential. Who are the competitors? What regulations prevail and how is the industry responding to new mandates? Are industry sales sensitive to changes in global or local economic conditions? Is the industry poised for growth or fast reaching its apex?

Turning the microscope to narrowly focus on a single company, it would be remiss to ignore the economics of its brands and reputation. An organization’s customer base can reward shareholders if net sales grow and add to free cash flow. On the other hand, disgruntled buyers can decide to go elsewhere or seek redress in a court of law. Both outcomes are costly and can lower share value. Notably, the damage associated with a lost sale can vary depending on how long it takes to recover, if possible at all. For example, a money manager that loses a large institutional client will be reinvesting a much smaller pool of capital over the ensuing months. Should other long-term consumers like peer pension plans get wind of bad news, they too may exit, causing the asset manager’s portfolio to plummet further.

It’s not remarkable then that new research concludes that “high firm and product awareness – or together, brand awareness – could lead to greater retained assets and new inflows.” Nevertheless, the message is one that bears repeating given the significance. While its 2016 survey affirmed the link between reputation and financial wellbeing, eVestment uncovered some startling trends too. They are summarized below:

• Institutional consultants review “less than two strategies per asset manager within a quarter.” This low number makes it hard for any particular firm to stand out by virtue of its brand.
• Institutional consultants in search of “a level of manager diversity” may not be swayed by a multitude of products offered by a larger vendor and instead focus on satisfying other goals.
• Awareness of larger asset management firms is not always an advantage. Survey results “showed managers with the highest brand awareness averaged outflows 4.5 times larger than inflows.”
• When a key person departs, the downside outweighs the upside of “the hiring of an equally reputable star portfolio manager.” If this is true beyond the survey sample, asset managers will want to be fully transparent about any events that might be perceived by institutional clients (or their consultants) as negative.

For details, read “Why Asset Manager Reputation Matters” (Chief Investment Officer, May 19, 2016) or download the white paper entitled “Importance of Brand Awareness” from the eVestment website. As Warren Buffett declared, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”