Round Hill Music, the New York-based music publisher which runs three private funds that have bought up the rights to thousands of songs, investing hundreds of millions of dollars, is to spin out its first fund next month through a London IPO. The Round Hill IPO is designed to give investors in the fund, including founder and former hedge fund manager Josh Gruss who heads up the company, an opportunity to cash out.
If the Round Hill music investment fund raises the entire $375 million it is looking to through the November IPO, Mr Gruss is expected to personally bank around $10 million. The IPO will be structured in a way that sees a newly listed vehicle acquire the 8-year-old fund that owns a catalogue of the rights to over 120,000 songs. Six Beatles tracks including From Me To You and What a Wonderful World, as well as titles by stars including the Rolling Stones, Celine Dion, Elvis Pressley, James Brown, Marvin Gaye, Meat Loaf and Phil Collins are among the fund’s most lucrative assets.
In fact, Mr Gruss’s stake in the first fund will see him receive $20 million when the newly listed vehicle acquires it. However, he has committed to re-investing half of that sum back into the newly-listed fund. The 46-year-old commented through a statement:
“I am seeking to align my interests with those of the potential new investors for the London-listed vehicle by investing around 50 per cent of the value of my holding.”
The prospectus prepared to promote the Round Hill Music Royalty Fund IPO defines Mr Gruss’s re-investment as a transaction that is of a “related-party nature”, as he will also run the newly listed company his advisory firm will sell the fund to. The board of the Round Hill Music Royalty Fund will, however, be advised on the acquisition of the catalogue by Cenkos, the stockbroker that has been hired to arrange the IPO. It will be independently valued before the proposed acquisition price is approved.
Mr Gruss believes investors have a growing interest in the music royalties business thanks to the increasing importance of music streaming services such as Spotify and Apple Music. One major attraction for potential investors is that music funds such as Round Hill, and peer Hipgnosis, are not expected to produce returns that show correlation to the other asset classes that typically make up a portfolio. For example, while equities, commodities, money markets and real estate assets have all been hit by the economic slowdown caused by the Covid-19 pandemic, people have listened to more music and consumed other forms of digital entertainment, especially streaming services.
Every time a song in the Round Hill catalogue is either played via a streaming service, on the radio, in a live performance or used in film, television or advertisements, as well as physical sales, the fund receives a royalty payment. The Round Hill Music Royalty Fund’s prospectus says it is targeting annual returns of between 9% and 11%, and a dividend yield of 4.5%. The catalogue that will be acquired from the existing fund vehicle has been valued at $363 by Massarsky Consulting Group.
As well as running the newly-listed vehicle, Mr Gruss will continue to advise the two remaining funds through Round Hill. That has raised the question as to whether there could be a potential conflict of interests if deals to acquire the rights to new works that could be suitable for more than one of the 3 funds under Mr Gruss’s control are identified. The provision devised to counter that potential conflict of interests is a prospectus pledge by Mr Gruss to offer the LSE-listed fund “not less than 50 per cent of each available investment”.
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