Hipgnosis Songs Share Discussion Threads

[rambutan2] 31/3/2023 15:44

So, as I said, share price is the factor for both, with divs added for the performance fee:

Performance Fee (pg158-59 of AR)
In respect of each accounting period, the Investment Adviser (or, where the Investment Adviser so directs, any member of the Investment Adviser’s team) is entitled to receive a performance fee (the ‘Performance Fee’) equal to 10% of the Excess Total Return relating to that accounting period provided that the Performance Fee shall be capped such that the sum of the advisory fee (payable in respect of the Average Market Capitalisation of Ordinary Shares only) and the Performance Fee paid in respect of that accounting period is no more than 5% of the lower of: (i) Net Asset Value; or (ii) Closing Market Capitalisation at the end of that accounting period.

The Excess Total Return for an accounting period is calculated by reference to: (i) the difference between the Performance Share Price at the end of that Accounting Period and the higher of: (a) the Performance Hurdle (being issue price compounded by 10% per annum from initial Admission subject to appropriate adjustments in certain situations); and (b) high watermark (being the Performance Share Price at the end of the last Accounting Period where a Performance Fee was payable); multiplied by (ii) the weighted average of the number of Ordinary Shares in issue (excluding any shares held in treasury) at the end of each day during that accounting period.

For the purposes of calculating the Performance Fee:
“Performance Share Price” means, in relation to each accounting period, the average of the middle market quotations of the Ordinary Shares for the 1 month period ending on the last business day of that accounting period (which shall be adjusted as appropriate: (i) to include any dividend declared but not paid where the Ordinary Shares are quoted ex such dividend at any time during that month; (ii) to exclude any dividend paid in respect
of the shares during that month; and (iii) for the PSP Adjustments). During the period, the average of the middle market quotations was 120.80p;
“Performance Share Price Adjustments” means adjustments to the Performance Share Price to (i) include the gross amount of any dividends and/or distributions paid in respect of an Ordinary Share since initial Admission; and
(ii) make such adjustments to take account of C Shares as were agreed between the Company and the Investment Adviser, acting reasonably and in good faith, at the time of issuance of such C Shares.
The amount of Performance Fee payable to the Investment Adviser shall be paid in the form of a combination of:
a) cash equal to all taxes or charges payable with respect to the Performance Fee by the Investment Adviser or member(s) of the Investment Adviser’s Team; and
b) Ordinary Shares (“Performance Shares”) which are either issued by the Company where the Ordinary Shares are on average trading at par or at a premium to the last reported Operative NAV per Ordinary Share at the relevant time or purchased from the secondary market where the Ordinary Shares are on average trading at a discount to the last reported Operative NAV per Ordinary Share at the relevant time and transferred to,
the Investment Adviser or member(s) of the Investment Adviser’s Team. The Performance Shares are subject to 18-month lock-up arrangements.

[jeffian] 31/3/2023 15:14

The Performance Fee is based on Total Shareholder Return but the Advisory Fee is based on the size of the Fund. This from the Prospectus -

"Advisory Fee
1.1 The Investment Adviser is entitled to receive an advisory fee calculated at the rate of:
1.1.1 1 per cent. per annum of the Average Market Capitalisation up to, and including, £250 million;
1.1.2 0.90 per cent. per annum of the Average Market Capitalisation in excess of £250 million and up to and including £500 million; and
1.1.3 0.80 per cent. per annum of the Average Market Capitalisation in excess of £500 million (the “Advisory Fee”)."

[edwardt] 31/3/2023 12:23

well their fee is down almost 50% then isn't it? that is actually good for us as shareholders perversely.

[rambutan2] 29/3/2023 03:23

As has been pointed out on this thread before, neither the management fee nor the incentive scheme are based on growing the size of the fund ie nav. Both are based off the share price.

[jeffian] 28/3/2023 17:05

#749,

Exactly my point, anhar, and what they should have been doing all along. I don't mean growing the gross income by raising and splashing out more capital/shares, I mean growing the income generated by each song. The key indicator is not overall profit, but earnings per share. There's no point getting bigger if you're not getting more profitable, but that's just what the manager's incentive schemes encourage them to do, being based on growing the size of the fund, not its profitability.

[cynicalsteve] 28/3/2023 16:24

When looking at SONG the phrase 'cheap for a reason' springs to mind.
If you only consider the NAV SONG looks cheap but I've invested in equity IT NAV plays with mixed results. When an event reduces the discount it is usually after several years of poor performance, to make big money your timing needs to be perfect.
The discount is usually reduced when the management is replaced, the old portfolio sold at close to NAV and a new one bought. Unfortunately SONG is a specialist fund and cannot easily replace its management or sell its existing portfolio.
If Blackstone aren't interested we are stuck with what we've got for as long as we are willing to hold it. Something will happen eventually of course, if might be in 5 weeks, it might be in 5 years.

[anhar] 28/3/2023 15:22

... That's why I say the managers' focus should be on growing income and let the capital value look after itself.

Indeed but why do you think they are not focusing on growing the income? They can't be focused on further acquisitions as they have no money for that far as I know. So what else could they be doing other than sweating the cats as I said?

[williamcooper104] 27/3/2023 22:45

Yep; to quote Wu Tang Clan C.R.E.A.M - Cash Rules Everything Around Me Cash > NAV Especially as the NAV is more mark to model that the market doesn't really buy into So best to sweat assets to show operating cashflow improvements

[jeffian] 27/3/2023 19:08

But capital values (NAV) are a function of income. If the income is static or declining, the capitalisation rate will fall and the price decline; if income can be shown to be growing, a higher multiple applies and values will rise. That's why I say the managers' focus should be on growing income and let the capital value look after itself.

[anhar] 27/3/2023 18:01

The reason they focus on NAV is because this is an investment trust and like it or not, NAV is how ITs are rated by the market, the price being based on a fluctuating discount to NAV. I too bought in as an income stock so I agree with what you say about divis, but the market judges ITs on NAV and that's just an unavoidable fact of IT life.

It's possible that they are now concentrating on sweating their existing cats as they have no cash for further acquisitions, so maybe divis will increase, having been static for years. But I'm not holding my breath...

[jeffian] 27/3/2023 17:15

They need to stop focussing obsessively on NAV and prove that they can generate a secure and growing income from the assets acquired. I'm sure that many, like me, invested in this asset class because it seemed to present a reasonably secure long-term income stream which could provide steady and growing dividends. If they can do that, the share price will look after itself in the longer term; if they, can't there's no point in them existing.

[riverman77] 27/3/2023 16:50

I don't think Blackstone would be interested in buying SONG - I suspect they want a few prime, timeless catalogues and are prepared to pay up for these (think Springsteen, Pink Floyd, Queen, etc). The SONG catalogue is too bitty - a handful of gems, but most of it is pretty obscure, and a lot of it is quite modern and will probably be forgotten in a few years - not great investment material.

[anhar] 27/3/2023 16:40

They wouldn't have to. They could either take over SONG and then liquidate it in order to own the cats directly. Or, they could buy the assets from SONG, leaving it as a quoted share with cash as its only asset. SONG could then be wound up, distributing the cash to shareholders.

Again just idle speculation which assumes the Blackstone partnership is even interested at all in acquiring SONG assets.

[williamcooper104] 27/3/2023 16:20

The LPs in the Blackstone fund don't want to own listed equities as that would mean marking to market Far better to mark to model

[anhar] 27/3/2023 10:14

If any deal to acquire SONG was priced at well under claimed NAV, that would be a dirty trick against shareholders. Hard to see how the management could justify that given their belief in the NAV hitherto.

In theory SONG is at such a huge discount to claimed NAV that it ought to be a screaming buy for anyone interested in this business. Not that there is any suggestion of a takeover, I'm just speculating.

Maybe the NAV will be written down substantially, which would rather make a mockery of previous valuations. I know the valuer is independent but even so.

Again just my speculation, there is no suggestion that NAV is seriously over valued...

[laughton] 24/3/2023 19:29

One or two of the managers might be musicians but not suse that MM ever was one.

I'm sure most retail investors would quite like an all-share deal at the moment especially if it was at what SONG claim as the NAV. And how could they act for both sides and suggest/agree to anything else?

Are Blackstonme really interested in a listing? I think they prefer to keep things private.

[jeffian] 24/3/2023 18:48

Your managers are musicians not businessmen and they are conflicted, both in the relationship between the management company and Hipgnosis (the fund, not the manager!) and between the management company and Blackstone. I can't see any way forward for them other than to absorb Hipgnosis fund into the Blackstone fund, but whether that would be good for SONG shareholders, I'm not so sure. Maybe an all-share deal with the resultant enlarged company keeping its listing?

[laughton] 24/3/2023 17:00

Probably need the money to pay the divis and salaries.

[edwardt] 24/3/2023 16:35

well the continuation vote in the autumn could be interesting. i suspect a few nasty hedge funds might appear on the register and orchestrate some pressure on the managers to prove value. the discount to supposed nav is now eye popping. this could possibly result in this hitting the right note in share price terms for the wrong reasons as far as the hipgnosis team is concerned. all speculation but i do think some will consider a protest vote - me included!

[rambutan2] 05/2/2023 20:44

And, as always, plenty of money on the hunt for the likes of what SONG owns:

LA-based Shamrock Capital has raised more than $600 million in commitments for its third equity fund for content strategy, exceeding its hard cap target of $500 million.

The firm is best known for buying the master rights to Taylor Swift’s first six studio albums from Big Machine in November 2020 for north of $300 million.

...Shamrock says the fundraising was supported by strong demand from existing investors and significant interest from new investors. The investors include a diverse mix of state, county and corporate pension funds, endowments, foundations, family offices, and other financial institutions.

Most recently in January, Billboard reported that Shamrock is among the buyers of Dr. Dre’s music assets.

The company has approximately $4.4 billion of assets under management.

[rambutan2] 05/2/2023 20:36

And not long to wait for a follow up:

Today (31/01), UMG has announced an interesting alliance with Tidal that will see the two companies work together to explore what they call “an innovative new economic model for music streaming that might better reward the value provided by artists”.

[rambutan2] 05/2/2023 20:33

Interesting musings from from Sir Lucian in early Jan:

“There is a growing disconnect between, on the one hand, the devotion to those artists whom fans value and seek to support and, on the other, the way subscription fees are paid by the platforms. Under the current model, the critical contributions of too many artists, as well as the engagement of too many fans, are undervalued.”

[rambutan2] 01/2/2023 04:02

Yes, the more Spotify users the better:

[edwardt] 31/1/2023 12:16

good results from spotify out fwiw