March 4, 2024

Normally, if an investment firm amasses an extremely high-profile basket of assets worth north of $2 billion, it wants the value of that basket to go on. Unfortunately for Hipgnosis Songs Fund, the value of its massive catalog of music off. On Dec. 21 the fund told investors it cut the value of his holdings by 9.2%.

The main driver was a reduction in the value of its music rights, which its portfolio appraiser said was worth $2.6 billion, or 6.2% less than previously thought. Earlier this week, the fund pushed back its half-year financial reporting by a few days as it tried to sort out the mess. It brought in a new financial auditorKPMG, to replace PwC, which was work with the company from the beginning. Hypgnosis too hired an investment advisor specializing in music rights to get to the bottom of things.

(For what it’s worth, royalties on that holding rose 10% from last year to $65 million, though the fund lost $63 million after costs.)

Buy music for not quite a song

Founded in 2017 by former music executive Merck Mercuriadis, UK-based Hipgnosis has made headlines over the past few years for shelling out huge sums for the rights to the music of superstar artists. In 2021, it paid $150 million for half of Neil Young’s rights to his extensive catalog. In January it paid off more than $200 million for Justin Bieber’s part in hits like “Sorry” and “Baby”. It has too acquired the songwriters’ rights to tracks like Mariah Carey’s “We Belong Together” and Beyoncé’s “Check On It,” among many, many other tunes.

The acquisitions were part of a wave of high finance interest in music rights that saw Blackstone partner with Hipgnosis. worth $1 billion in 2021. The Hipgnosis commitment was that, even if streaming diminishes the value of music for the artists themselves, there’s still money to be made in merging a bunch of little royalty into something more substantial.

The pressure of being a public company

But Hipgnosis went public in 2018, and having outside shareholders complicates things. In July, the Financial Times reported that rising interest rates depressed the value of music rights deals, which in turn reduced the value of Hipgnosis’ songs. The value of Hipgnosis’s stock and its asset book value increased, and pressure mounted to shake loose change from the couch cushions. (Unhelpfully, Hipgnosis had to delete a just announced dividend payment in October due to a US copyright ruling on music royalties that reduces the fund’s expected future earnings.)

In September, Hipgnosis’ main fund announced that it would raise $20 million in “non-core” music and 29 of its catalogs worth more than $400 million to its Blackrock-rooted sister fund to help pay down some of its debt and support the share price. Shareholders rejected this Blackstone deal because it did not include an update to the asset values, which Hipgnosis instructed to send or shut down instead. Since then, the fund has ousted its chairman and begun a strategic review, which is ongoing.

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