Hipgnosis shares drop to new low after its portfolio value is cut by over 25%

Hipgnosis Songs Fund shares fell to a record low on Monday after the music investor slashed the value of its portfolio by over a quarter.

The struggling company, which owns the back catalogues of artists like Shakira and Chris Cornell, appointed investment banking firm Shot Tower Capital in December to conduct due diligence on its assets.

Shot Tower estimated the fair market value of the group’s portfolio to be $1.8billion to $2.06billion, or between $1.7billion and $2billion once bonuses to musicians are deducted.

Lower worth: Hipgnosis Songs Fund shares fell to a record low on Monday after the music investor slashed the value of its portfolio by over a quarter

The portfolio’s midpoint valuation of $1.93billion represents a drop of about 26 per cent on the $2.62billion that HSF judged its catalogues were worth in September 2023. 

Due to the significant reduction in value, HSF does not intend to restart dividend payments ‘for the foreseeable future,’ having suspended them in November last year due to financial pressures.

Instead, the London-based business will put its free cashflow towards cutting debts, which stood at $674million last September. 

Following this latest announcement, the fund’s share price plunged 13.6 per cent to 54.5p, more than half down on its peak of 129p in November 2021.

HSF has experienced significant turmoil for at least a year as rising interest rates have depressed the attractiveness of music royalties compared to other asset classes like bonds.

The company has also accumulated huge debts through buying dozens of back catalogues, including those belonging to Blondie, the Red Hot Chili Peppers, and Fleetwood Mac’s Christine McVie and Lindsey Buckingham.

By the Way: Hipgnosis Songs Fund owns the back catalogue of rock band The Red Hot Chili Peppers (Pictured: The band’s frontman Anthony Kiedis and bassist Flea)

Last October, HSF launched a strategic review to determine how to boost investor value, including a review of its management setup.

That same month, shareholders voted down the proposed £372million sale of 29 music catalogues to funds backed by asset manager Blackstone and against giving HSF a five-year mandate to be run as an investment trust.

Soon afterwards, HSF revamped its board, bringing on two ex-directors of publishing group Round Hill Music, Robert Naylor and Francis Keeling, as chairman and non-executive director, respectively.

Naylor said on Monday: ‘The newly constituted board is making good progress with the due diligence work that will underpin its strategic review.

‘We are disclosing the valuation at this time given its material difference to valuations previously disclosed. The board will provide further details on this when the due diligence is complete.’

Shot Tower has told HSF bosses that it intends to present its complete due diligence findings to them by 25 March.

HSF was founded in 2018 by Chic guitarist Nile Rodgers and Merck Mercuriadis, who managed some of the world’s most popular musicians, from Iron Maiden to Guns ‘N’ Roses and Sir Elton John.

Mercuriadis recently stood down as chief executive of HSF’s investment adviser, Hipgnosis Songs Capital, to become chairman of Hipgnosis Songs Management, the manager of HSF’s assets.

HSF and HSM have endured a tense relationship, with bosses at the former warning that a call option held by the latter, which grants it the right to buy HSF’s songs portfolio, is harming the portfolio’s value.

Russ Mould, investment director at AJ Bell, said: ‘The chaos around the management of the trust has been a big turn-off for investors, and many may no longer consider music royalties to be the lower-risk, dependable asset class originally suggested.

‘Hipgnosis has had its 15 minutes of fame and has now been cast aside like a one-hit wonder boyband. A comeback story could be a long way off, if there is even one at all.’