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Hipgnosis Songs Fund launches strategic review

Oct 19, 2023

Mercuriadis at SXSW in 2019. Photo: Matt Winkelmeyer/Getty Images for SXSW

Hipgnosis Songs Fund, Merck Mercuriadis' U.K.-based music royalties fund, is undergoing a strategic review that could lead to the famed manager's ouster, the company said Thursday morning.

Why it matters: Hipgnosis' financial turmoil is further proof that the music rights bubble may have burst.

What's next: Next Thursday, shareholders will decide whether to approve a continuation of the investment trust for another five years.

Details: Hipgnosis said the review's goal is to increase shareholder value, but it does not plan to sell the company, currently valued at £882 million.

  • "The strategic review does not envisage any offer for the company, recommended or otherwise, under the City Code on Takeovers and Mergers," the company said.
  • Additionally, the board said it tried to amend its investment advisory agreement with Mercuriadis — he manages the fund, which is overseen by an independent board — including serving a notice of termination. But the board does not have a new investment advisor approved to take his place.
  • Mercuriadis has a clause in his agreement that allows him to buy Hipgnosis' entire portfolio of music rights if his contract is terminated; the board said he rejected their proposal to remove that clause.
  • Hipgnosis is also looking for a new chair ahead of the retirement of Andrew Sutch.

The big picture: Mercuriadis launched Hipgnosis in 2018 and spent billions in the ensuing years on buying rights to catalogs from Barry Manilow, Blondie, the Red Hot Chili Peppers and Neil Young.

  • Hipgnosis wasn't the only one, as firms including Blackstone and KKR poured money into the belief that song rights were a stable asset class.
  • Not only have catalog deals dried up this year, but the returns on investment for those pricey song rights aren't as high as expected — earlier his week, Hipgnosis scrapped its dividend after telling investors it would now get only half the amount of royalty payments it was expecting.
  • Investors have criticized a proposed deal to sell roughly a fifth of its catalog to Blackstone-backed sister fund Hipgnosis Songs Capital — also run by Mercuriadis — at a discount for £363 million.
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