Hipgnosis Songs Fund Lowers Valuation of Music Catalogues
The Hipgnosis Songs Fund (HSF), a publicly-listed investment company focused on acquiring music catalogues, has announced a 9.2% reduction in the valuation of the music catalogues it owns. This decision was outlined in the delayed financial results for the first half of the current financial year. The company also addressed the ongoing tensions between HSF and its investment advisor, Hipgnosis Song Management (HSM).
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HSF’s new Chair, Robert Naylor, stated that despite the positive music market and like-for-like income growth of the company’s assets, the company’s operative net asset value fell by 9.2%. This reduction primarily reflects the material reduction in expectations related to the royalty rate changes introduced by the US Copyright Royalty Board (CRB). HSF had to cancel a proposed dividend payment to shareholders in October because the windfall due from changes made by the CRB to the song royalties paid by streaming services was less than half of the original expectations.
There are concerns about the reliability of the current valuation of HSF’s catalogues. Naylor mentioned that the board is aware of multiple data points and transactions within the market that are at material discounts to the implied fair value of the company’s assets. The board sought guidance from HSM, but it initially declined to give an opinion. After repeated requests, HSM provided an opinion that was heavily caveated. As a result, the board recommends that investors use the fair value and the operative net asset value with a higher degree of caution and less certainty than might otherwise be attached to it.
Update on HSF’s Strategic Review and Investor Concerns
Naylor also provided an update for shareholders on the strategic review of HSF’s operations, which was initiated amid growing criticism among investors of the fund’s previous board and its relationship with HSM. Specific issues raised by investors include concerns around financial reporting and disclosure at HSM. It is worth noting that HSM is majority owned by funds advised by Blackstone, just like Hipgnosis Songs Capital, another music rights-owning fund also advised by HSM.
Earlier this year, HSM proposed a sale of some of HSF’s catalogues to Hipgnosis Songs Capital at a discount as part of a plan to boost the HSF share price. However, the proposal was rejected by HSF shareholders. Regarding financial reporting, Naylor expressed his belief that HSM’s newish Chief Financial Officer, Dan Pounder, who was appointed in September, is effectively dealing with past problems. However, the perceived mismanagement of conflicts of interest is harder to address, but the board will seek to do so in the coming months.
Key Concerns and Future Proposals
There is ongoing tension between HSF and its investment advisor, HSM, leading to concerns about the reliability of the current valuation of the company’s assets. The board recommended that investors exercise caution and less certainty with the fair value and the operative net asset value. Shareholders also raised concerns about financial reporting and disclosure at HSM, along with the relationship between HSF and HSM.
As the strategic review of HSF progresses, it remains to be seen what proposals are made to address these concerns. The board is committed to addressing the challenges and ensuring the transparency and accuracy of the fund’s operations.
In conclusion, the current challenges faced by HSF and the ongoing tensions with its investment advisor have prompted the company to lower the valuation of its music catalogues and caution investors about the reliability of this valuation. The strategic review is expected to provide insights into potential solutions for the issues raised by shareholders, particularly regarding financial reporting and conflicts of interest. The board remains dedicated to addressing these concerns and maintaining the transparency and integrity of the fund’s operations.