Shares in Hipgnosis Songs Fund (SONG ) have jumped over 5% after fund manager Merck Mercuriadis sealed a $1bn partnership with Blackstone, the world’s largest alternative assets manager, that puts its nascent asset class of music royalties on the map and boosts its firepower for bigger deals.
Hipgnosis Songs gained 6p or 5.8% to 126p as New York-listed Blackstone (BX.N), which runs $684bn in private equity, real estate, debt and other non-public investments, agreed to buy a stake in Mercuriadis’ Hipgnosis Song Management (HSM). Previously known as The Family (Music) Ltd, it launched the popular Hipgnosis Songs fund three years ago.
Under the partnership Hipgnosis will buy music rights and manage song catalogues for funds within Blackstone’s $32bn Tactical Opportunities strategy.
Hipgnosis Songs, a £1.4bn Guernsey investment company, is expected to benefit from Blackstone’s investment in its adviser’s business and infrastructure, which is designed to enhance the value of the songwriters’ copyrights it acquires.
Songs Fund will also have the right to co-invest in future catalogue purchases alongside the Blackstone and Hipgnosis.
Andrew Sutch, Hipgnosis Songs’ chair, said: ‘This new partnership will provide new co-investment opportunities for SONG, and we expect that continued investment in Hipgnosis Song Management will enhance returns for our investors.’
Christopher Brown, investment companies analyst at JPMorgan Cazenove, corporate broker to Hipgnosis Songs, said the deal was further evidence of the increasing number of investors looking at songs as an alternative source of income and capital growth in the age of streaming.
‘The possibility of co-investing alongside a large pool of additional private capital available to the investment advisor may mean the opportunity to in future acquire some higher value catalogues than might have been possible previously, similar to how we see many other closed-end funds in the infrastructure, debt and private equity sectors make investments alongside private funds which are also managed by their investment managers,’ Brown said.
Today’s rise leaves SONG trading at a small premium to Brown’s estimated net asset value per share of 123.6p.
Mercuriadis (pictured) said: ‘Given the strength of our pipeline, we see the initial commitment as just the start of a long-term partnership between Blackstone and Hipgnosis that will also include co-investment with SONG.’
Qasim Abbas, senior managing director of Blackstone Tactical Opportunities, said: ‘This partnership underscores the long-term, sustainable value we see in creative content across the wider entertainment industry, building on Merck’s vision and dynamism.’
Mercuriadis, who oversaw the Songs Fund’s £200m flotation in 2018, used to manage artists including Elton John, Guns N’ Roses and Beyoncé. After a series of fund raisings, SONG has amassed 138 catalogues covering over 64,000 songs. Among others, it has recently acquired the catalogues of Joel Little and Christine McVie, vocalist of Fleetwood Mac.
According to the Association of Investment Companies, the portfolio has returned 36.4% on a net asset value basis over three years and yields over 4% in quarterly dividends.
The music royalties sector has been growing in recent years, becoming a more popular option for investors looking to diversify away from traditional equities and bonds. While Hipgnosis was the first listed closed-ended vehicle to offer access to investors in the UK, it has been joined by Round Hill Music (RHM ), a £320m fund with 39 catalogues of more than 118,000 songs.
Earlier this month, Apollo Global Management said it will back the launch of HarbourView Equity Partners, an asset manager in the media and entertainment space. And in March, KKR partnered with label and publisher BMG to acquire major music catalogues.
While private equity groups see music royalties as a lucrative opportunity because of the dependable recurring income, their involvement in the industry has been controversial at times.
The case of Taylor Swift brought attention to some of the issues in the industry: Buyout firm The Carlyle Group supported music mogul Scooter Braun’s $300m acquisition of Big Machine Label Group and the rights to Taylor Swift’s first six albums.
Swift subsequently accused Braun of blocking the use of her music and was in an ongoing battle with him over the rights to her albums. She even pleaded with Carlyle Group to help her.
Last year, the rights to Swift’s music were sold once again to a private equity firm, without her knowledge.
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