Music Royalties

As far as 'uncorrelated' strategies go, there has always been one which has managed to consistently pique investors' interest. Music Royalties. There is just something about the blend of personal and professional interest. Mostly everybody loves music; even the most fastidious and discerning investor will have been moved by a certain track or harbour an affinity for a certain artist. And who wouldn't want to own some of their favourite catalogues, if they had a practically limitless war-chest?

At the same time, it is intuitive and easy to understand. This is a security created outside of finance and it is pretty simple: when a song gets played, somebody gets paid; and although once you lift the hood things get slightly more complicated, the basic premise of a royalty is fairly easy to understand. For that reason, it was not difficult to get meetings and ultimately raise money from some sophisticated and institutional investors. I'm sure you can understand that from the perspective of a placement agent, that makes it a pretty good product! That said, although we were among the first, we certainly were not the only ones with this idea, and since 2013, a great deal of capital has been raised in what is essentially a scarce asset class. Moreover, since that time, the low-rate environment which fostered such a rich dealmaking environment, and rendered the return profile so attractive, has demonstrably shifted.

In the second of a series of thought-pieces exploring alternative assets, we will look to explain the mechanics behind music royalties; explore why they grew so rapidly in popularity and the reasoning behind a potential decline in dealmaking cadence. Most importantly, we will cast our eyes to the future and discern whether there is a viable future for this asset class, because after all, nobody wants to be there when the music stops… especially if you paid for the party.