Signal Radar: Will our financial futures soon be more reliant on the fortunes of our favourite musicians?

Persistently low interest rates over the past decade, coupled with economic uncertainty and dividend cuts have increased investor interest in alternative sources of income.

– This signal forms part of Hunch | Strategic Innovation Pathfinder, our proprietary cross-sector database examining changes in customer behaviour and expectations that have the potential to grow in scale and impact. –

A new kind of investment fund is buying up the back catalogues of musicians and paying an income to shareholders from the royalties earned each time the music is played on radio or streaming services.

Round Hill raised $328m in a series of share issuances in 2020 to help meet growing investor demand for alternative sources of income, the latest of which completed in December.  The fund has said it will use the money raised to purchase music by the Beatles, Louis Armstrong and others in its pipeline.

Hipgnosis has been listed on the London Stock Exchange since July 2018. It was set founded by Mr Mercuriadis who previously managed artists such as Beyoncé, Elton John, Iron Maiden and Guns 'N' Roses. The Hipgnosis Songs fund has grown to £1.2bn in size and recently added the entire works of Barry Manilow to its catalogue, which includes Adele, Justin Bieber, and Stormzy. The fund has so far generated a yield of 4.3% from the royalties of popular songs including Manilow’s ‘Copacabana’, Justin Bieber’s ‘Baby’ and Rihanna’s ‘Umbrella’.

Questions remain around how exposed investments will be to changes in musical taste and whether music labels themselves will buy rights from artists, potentially pushing up the costs for the funds. The return, while attractive in the current climate, may not look so appealing when equity dividends return after the coronavirus pandemic restrictions ease.

Will royalty based funds soon spark a change in the way we invest for the long term?

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