Music PE | Hipgnosis / BX

Long-story short is that Hipgnosis raised a significant amount of public capital and sought to deploy it at maximum velocity. In an effort to become top of mind to all potential sellers, they essentially set the high end of market multiples, reportedly paying upwards of 25-30x for iconic music rights. As a backdrop, a lot of the top artist catalogs have seen some high single digit, to low double-digit growth with active management, but music assets/IP are generally sought after for their general stability and predictability (once they’re fully mature/stabilized) - paying VC/tech level multiples was always going to be an uphill battle.

Their strategy really proliferated when their 4-5% annual dividend was relatively attractive during a time of near-zero interest rates and cheap debt. One of the first strikes against their strategy/management came when interest rates sky-rocketed but their third-party valuation agent refused to adjust their discount rate and hold their valuations constant. Their heavy reliance on outside parties for diligence/accounting/etc. came back to haunt them when they recently severally miscalculated a significant industrywide “make-up payment” (read up on the CRB rulings and one-time adjustment payment) resulting in the suspension of their quarterly dividend. There’s quite a bit of additional frustration from investors given the complexities of their relationship with BX, who funds a separate music investment vehicle that the founder (Merck) is also directly/indirectly involved with.

Long-story short is that music remains a highly attractive, uncorrelated asset class, but irresponsible investing will come back to bite you no matter the industry. The days of dumb money and flipping cat coins are over.