Hipgnosis Songs Fund, a prominent music royalty firm known for its rights to artists like Beyoncé, Shakira, Neil Young, and Red Hot Chili Peppers, is currently navigating a challenging phase marked by a decline in asset value and internal management issues. As of September 30, the fund reported a 9.2% decrease in operative net asset value per share, a significant drop from the end of March.
Compounding these financial struggles, Hipgnosis faced a shareholder revolt in October, leading to the ousting of its chairman and the demand for new management strategies within six months to avoid potential dissolution. This turbulence reflects deeper concerns over the fund's future, especially after a failed attempt to sell a significant portion of its music catalogues.
Adding to the fund's woes, a recent independent valuation by Citrin Cooperman suggested a higher asset value than implied by recent sector transactions. This discrepancy led Hipgnosis to delay its half-year results, raising questions about the accuracy and transparency of its financial reporting. The fund's investment adviser, Hipgnosis Song Management (HSM), provided a "heavily caveated" opinion on this valuation, further complicating the situation.
Despite these challenges, Hipgnosis reported a 14% increase in underlying net revenue for the six months ending September 30. However, this financial upturn is overshadowed by ongoing legal action from HML, a former business of the fund's founder Merck Mercuriadis, accusing Hipgnosis, HSM, and Mercuriadis of misappropriating a business opportunity.
Mercuriadis, a seasoned music industry veteran, founded both Hipgnosis Songs Fund and HSM in 2017, aiming to transform music rights into a mainstream asset class. However, higher interest rates have led to a decrease in song right valuations, affecting the fund's financial health.
The tension between Hipgnosis' board and Mercuriadis is evident, with JPMorgan analysts noting that these valuation issues cast doubt on the credibility of both the fund's new board and the independent valuer. In response, Hipgnosis Song Management asserts its commitment to fulfilling its duties efficiently and supporting the company and its shareholders.
As Hipgnosis navigates these multifaceted challenges, the investment community watches closely, anticipating the fund's next moves in a rapidly evolving and increasingly competitive music rights landscape.