Normally, if an investment firm assembles an extremely high-profile basket of assets worth north of $2 billion, it wants the value of that basket to go up. Unfortunately for Hipgnosis Songs Fund, the value of its massive catalog of music is down. On Dec. 21, the fund told investors it was snipping the value of its holdings by 9.2%.
The main driver was a cut in the value of its music rights, which its portfolio evaluator 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 couple of days as it tried to sort out the mess. It brought in a new financial auditor, KPMG, to replace PwC, which had been working with the company from its start. Hipgnosis also hired an investment advisor specializing in music rights to get to the bottom of things.
(For what it’s worth, royalties on those holdings was up 10% from last year, to $65 million, though the fund lost $63 million after costs.)
Buying music for not quite a song
UK-based Hipgnosis was founded in 2017 by former music manager Merck Mercuriadis, and has been grabbing headlines the last few years as it laid down 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 more than $200 million for Justin Bieber’s share in hits like “Sorry” and “Baby.” It also 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 acqusitions were part of a wave of high finance’s interest in music rights that saw Blackstone partner with Hipgnosis to the tune of $1 billion in 2021. The Hipgnosis bet was that, even as streaming decimates the value of music for the artists themselves, there’s still money to be made in pooling a bunch of tiny royalty streams into something more substantial.
The pressures 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 were depressing the value of music rights transactions, which in turn cut the value of Hipgnosis’ songs. The value of Hipgnosis’ shares and its asset book value was widening, and pressure was building to shake some change out the couch cushions. (Unhelpfully, Hipgnosis had to scrap a just-announced dividend payment in October because of a US copyright decision on music royalties that cut the fund’s expected future earnings.)
In September, Hipgnosis’s main fund announced it would sell $20 million of “noncore” music and 29 of its catalogs worth more than $400 million to its Blackrock-seeded sister fund in order to help pay down some of its debts and prop up the share price. Shareholders rejected that Blackstone deal because it didn’t include an update on the asset values, instructing Hipgnosis to ship up instead or shut down. Since then, the fund has ousted chairman its chairman and initiated a strategic review, which is ongoing.