Investment company bargain hunter AVI Global (AGT ) has increased its stake in Hipgnosis Songs (SONG ) ahead of a crucial continuation vote in the next month by shareholders in the music royalties fund.

A stock exchange filing today showed £932m AVI Global, which specialises in buying out-of-favour stocks on wide discounts, has lifted its position in the £1bn alternative income fund to 3.1%. This represents a £32m stake, up from an £8.3m holding at 31 March, according to half-year results in June, when it accounted for 0.8% of the portfolio.

Fund manager and Asset Value Investors boss Joe Bauernfreund declined to comment, but the stake-building comes at a pivotal time as shareholders decide on whether to support the company’s plans to revive its struggling share price or to wind down the investment company after slightly more than five years on the London Stock Exchange.  

The continuation vote and asset disposal are conditional upon each other, meaning shareholders can only vote for the sale and continuation or neither.

Bauernfreund, an occasional activist when target boards do not do enough to rerate their shares, could be preparing to vote against continuation, betting that a wind-up, or move to take the company private, will see the share price jump as its current 45% discount to net asset value (NAV) narrows. AGT’s last campaign was in 2021 when it battled Dan Loeb’s hedge fund Third Point (TPOU ) to do more to boost shareholder returns. 

Alternatively, it could be a two-way bet that the music fund founded by Hipgnosis’ Merck Mercuriadis will either be taken out, like rival Round Hill was earlier this month, or its board will be forced to take more aggressive action to narrow the wide discount.

Hipgnosis Songs shares, off 1.3% to 84.4p today, have fallen 12% from a year-to-date peak of 84.9p earlier this month after the company last week unveiled a complex plan to sell a fifth of its back catalogues at a discount to its fund manager and use the proceeds to buy back its derated shares and pay down its debt.

Stifel analyst Iain Scouller noted that several shareholders had told him they did not support the asset disposal, and the conditional nature of both means the trust would fail its continuation vote as well. In that scenario, he thought shareholders would want the board to be replaced.

‘A new NAV will have to be calculated to reflect the discount of the Blackstone bid, and it is likely in this scenario the fund would exceed its 30% of operative NAV debt limit, potentially also become within touching distance of the RCF covenant and risk a dividend suspension to preserve liquidity. This is not appealing in our view,’ he said.