Interactive Investor

Music stops for song royalty trust

Hipgnosis Songs Fund could be wound up after its continuation vote failed.

27th October 2023 10:35

by Sam Benstead from interactive investor

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Investors have voted against the continuation of music royalty investment trust Hipgnosis Songs Fund, putting the future of the trust in doubt as it undergoes a “strategic review” by the board.  

A total of 83% of the shareholders voted against granting the trust another five-year mandate. Now, the board must take a maximum of six months to listen to shareholders and decide on the next steps for the trust, which could ultimately mean that assets are sold off and the trust is closed.  

The trust's shares jumped around 6% following the vote. 

Shareholders also voted against selling 29 music catalogues to Hipgnosis Songs Capital, a fund run by private equity group Blackstone, for $440 million (£363 million). The deal was designed to raise capital and fund a share buyback to close the 50% discount on the trust.  

The vote follows Hipgnosis scrapping its interim dividend after its third-party valuer reduced its calculations for music royalty income. 

The trust, which launched in 2018, buys up the back catalogues of music artists in order to collect royalty payments, which it then returns to shareholders via dividends. Included in its portfolio are songs by the likes of Shakira, Blondie and the Red Hot Chili Peppers. 

However, due to changes to US copyright law last year for the 2018 to 2022 period – known as Copyright Royalty Board III – Hipgnosis’ independent valuer Citrin Cooperman cut its retroactive accrual income for the year ending in March 2023, from $21.7 million (£18 million) to $9.9 million (£8 million). 

Shareholders also voted to oust chair Andrew Sutch. This follows the resignation of two directors before the annual general meeting, meaning that a refreshed board will be in control of the trust’s future.  

The priority for the board and shareholders will be to close the wide discount on the trust, or failing that, liquidate the assets of the trust at a “fair” value and return capital to investors.  

Sylvia Coleman, senior independent director of Hipgnosis Songs Fund, said: The board and the investment adviser have each engaged widely with investors over recent months. While shareholders have not supported our proposed transaction or the continuation vote, it is clear that they share our belief in the inherent quality and potential of these assets.  

“The directors are now expediting the appointment of a new chair who will drive the strategic review we have already announced, with a clear focus on delivering improved shareholder value.

Broker Numis said that it had expected the continuation vote to fail as shareholders had expressed their dissatisfaction with the management of the trust and the proposed sale of assets to BlackStone.

Before the vote, it added: “It is astounding that Hipgnosis Songs Fund can be trading on a nearly 50% discount when Round Hill Music Royalty, its closest peer, has just approved its acquisition at an 11.5% discount to net asset value. 

“Ultimately, this may offer an attractive buying opportunity for an asset class that should produce an attractive, growing income stream over the long term, but is understandably uncertain when debt covenants are close to being breached and when governance is called into question.” 

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