Mo’ songs, mo’ problems.
In an effort to pay off debt and boost its stock, the UK-listed Hipgnosis Songs Fund is selling 29 catalogs of music, or roughly 20% of its portfolio, for $465 million. And who are they selling the music to? Itself… sort of.
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HSF launched in 2018 on the idea that the royalties earned from streaming, radio plays, and live performances of songs were a lucrative asset for investors. Founder Merck Mercuriadis had previously said they’re as good an investment as gold or oil. But multiple spending sprees worth billions over the years for the likes of Red Hot Chili Peppers and Neil Young songs hasn’t earned much shareholder confidence.
HSF owes hundreds of millions of dollars in debt, its share price has gone down roughly 8% in the last 12 months, and the company has been trading at about 50% of its net asset value. Mercuriadis hopes the sale announced Thursday will appease investors as next month they will vote to either back the fund for another five years or liquidate it:
- The sale contains works from high-profile artists such as Rick James, Barry Manilow, and Shakira. It also includes music from long-time industry man and HSF co-founder Nile Rodgers.
- The music is being sold to Hipgnosis Songs Capital, a partnership between advisor Hipgnosis Song Management and investment manager Blackstone. Yes, the names are all very confusing, aren’t they? The sale will fund a share buy-back program of up to $180 million, repayment of $250 million in debts, and introduce lower investment advisory fee tiers.
It Used to be About the Music: Another major problem for HSF is that music is far from the most attractive asset class right now. When it first launched, interest rates were near zero. But with global inflation and interest rates high across the board, both Wall Street and Main Street are flocking to bonds. In total, fund investors have bought $170 billion in bond funds so far this year, after withdrawing $345 billion during last year’s rout, MarketWatch reported. And in June, a survey from CNBC found that more than a third of millionaires are keeping their assets in cash and cash equivalents like CDs — and we don’t mean compact discs.