Hipgnosis Songs Fund (SONG) currently has net assets of c. £700m, and aims to achieve income and capital growth by owning songwriters’ music royalties. In particular, the manager targets songs expected to be beneficiaries of the global rise of music streaming. SONG now owns 54 catalogues, comprised of multiple writers, performers and genres. In total, the portfolio has over 13,000 songs, featuring 1,810 number-one hits (in at least one country). 49 have been awarded a Grammy. At current valuations, the portfolio is generating gross income of c. 6.7%. The manager hopes to grow both the capital value and income from the portfolio in a number of ways. A secular tailwind is provided by the growth in global streaming, which is showing no signs of slowing. Additionally, the 2018 US Copyright Royalty Board ruling will increase the US royalty pot by 44% by 2022. Manager-led initiatives include having a dedicated resource behind each song the trust owns, ensuring that revenues are maximised. Efficiencies in collecting revenue are expected as the portfolio administration is transitioned to Kobalt Music over the next two to three years. Kobalt is the preferred administrator, which claims to be able to recover 20% more income on a like-for-like basis relative to other administrators. Over the past year, the portfolio’s earnings have covered this year’s 5p dividend two times over. The manager seems optimistic for the near-term prospects for income generation, and the board has reiterated its dividend target.
