New music-royalty fund will cash in on classic pop hits
The Round Hill Music Royalty Fund, a rival to the well-established Hipgnosis Songs Fund, has just debuted on the London Stock Exchange. David C Stevenson takes a look.
London-listed fund Hipgnosis Songs (LSE: SONG) has raised over £1bn from investors looking to buy into a new, diversified asset class: music rights and royalties. The fund boasts a yield of 4.5% with the shares trading on a 4.4% premium to net asset value (NAV). Hipgnosis has been constantly raising fresh equity, in part to pay for new acquisitions. It has just announced the purchase of 42 catalogues from music major Kobalt Music Copyrights for $322.9m.
Each of the compositions comes with a regular yearly stream of payments from a variety of rights. Some of those are performance royalties; others are mechanical royalties (streaming comes into this category). Sync rights cover using music in broadcasts, while there is also a catch-all category called a master rights agreement, which gives the owner all rights. The Hipgnosis portfolio now comprises 117 catalogues and 57,000 songs with a total acquisition value of £1.18bn. The valuation multiple across the whole portfolio is now around 15 times income.
A new kid on the block
Friday 13 November saw a potential rival make its debut: the Round Hill Music Royalty Fund (LSE: RHM), which has been targeting a $375m fund-raising. The target yield is also 4.5%, with an estimated total return of 9% to 11% per annum based on a portfolio of over 40 catalogues and 120,000 songs.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Round Hill will provide some much-needed competition for the Hipgnosis fund. On paper it actually appears the safer bet. Round Hill has been in the music-publishing business as an investor for ten years now and is already the seventh-largest music-publishing firm globally.
It manages three funds with over $700m in assets under management and has a long record. Its first fund has, according to Round Hill, produced a gross investment return of 17% per annum. Crucially Round Hill has also tended to focus more on older, pre-1990 songs, with rock music tracks representing 32% of the portfolio and country 24%. Hipgnosis has not stood still, however, and recently bought an outfit called Big Deal Music. It provides in-house song administration expertise, which will apply across the US portfolio. In-house management is crucial.
Buying the rights to music is not just a passive exercise, and investors need to know that their music investments won’t suffer from diminishing returns over time as hits become forgotten. At Round Hill, its in-house Zync agency has been involved in this proactive management for many years and the real test for both Round Hill and Hipgnosis will be how they can add value to their vast catalogues. Most songs fade away but some classics can keep producing revenues. Round Hill points to Celine Dion’s version of Eric Carmen’s All By Myself, which produced $1m last year, 44 years after the original was first released. Crucially, Round Hill owns 100% of all rights to many of its classic tracks.
Putting a price on pop
Another big question for investors is how to value these music rights assets. There are some transactions to base calculations on, and both funds have independent valuers – but putting a value on some lesser-known tracks is more art than science. Given the high valuations being ascribed to music rights by tech firms (who are waking up to the potential value of music libraries at the likes of Warner Music Group and Universal Music Group), this might seem irrelevant, but bear in mind that this is still a small, illiquid market dominated by large institutions.
Still, given Round Hill’s track record and focus on classics, its shares will probably command at least the same premium as Hipgnosis’. The bigger question is whether music rights can keep producing solid, non-correlated (to the economic and market cycle) returns without pushing valuations too high.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
-
Do you qualify for the Winter Fuel Payment if you live abroad?
The Winter Fuel Payment will be means tested for expats living in Europe, in line with the new rules impacting those in the UK. But a quirk in the system means not all countries are eligible.
By Katie Williams Published
-
What the Employment Rights Bill means for your job
New workplace reforms are set to give employees new rights to benefits and flexible working
By Marc Shoffman Published
-
Is China an undervalued market?
Most funds remain wary of China amid slowing growth. Have they got it wrong?
By Max King Published
-
A fairer deal for investment trusts
New rules on how investment trusts report costs should ditch the idea that investors only need to look at one number
By Cris Sholto Heaton Published
-
Qualcomm could acquire rival Intel – but securing the deal won't be easy
A tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
By Dr Matthew Partridge Published
-
After Priips changes, investment trusts are due a rerating
Heavy-handed rules governing fees, which put investment trust companies at a disadvantage, are to go.
By Rupert Hargreaves Published
-
Top trusts that offer growth at a discount
Professional investor Alastair Laing picks three trusts where he'd put his money
By Alastair Laing Published
-
How to invest in the quiet market months
Here's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
By Cris Sholto Heaton Published
-
Spire Healthcare: invest in the booming demand for private healthcare
Spire Healthcare is one of the few listed companies benefiting from the growing trend in private healthcare. Should you invest?
By Rupert Hargreaves Published
-
Are insurance companies a good investment?
Costs may be soaring but the insurance sector is currently going through one of its most profitable periods. The market has been slow to realise the opportunity here
By Rupert Hargreaves Published