How a Tiny Island Became a Hotspot for Music Publishing Ventures
Holy cow! The new "royalty fund" model for music publishing is centered in Guernsey, a small island in the English Channel.
Minneapolis. Seattle. Atlanta. Guernsey?
Most music executives probably don’t know much about the island, a 25-square-mile British Crown Dependency in the English Channel that’s best known for dairy cows and tax avoidance. But the way financial regulations there allow music publishing ventures to organize their assets and operations into separate companies has made it a surprising hot spot, and home to some prominent recent entrants in the business: Hipgnosis Songs Fund Limited, Round Hill Music Royalty Fund Limited and Tailwind Acquisition Corp.
Well, sort of. Those companies don’t have real offices on the island, and their top executives aren’t among its 63,000 inhabitants. In fact, those executives are technically employed by the investment advisory firms that work with those companies: The Family (Music) Limited (which works with Hipgnosis), Round Hill Music and Tailwind Entertainment Limited.
All three ventures operate as “royalty funds,” a corporate setup new to the music business that distills publishing investments down to their essence. The Guernsey-based corporations acquire song catalogs, collect royalties and pay dividends to shareholders. Decisions on acquisitions are handled by the investment advisers, which are based elsewhere (London for Hipgnosis and Tailwind; New York for Round Hill) and are paid by the funds for that and other work they do to exploit the songs they own. (All three ventures have administration companies on the island to handle banking and other day-to-day operations.)
Why Guernsey? Hipgnosis founder Merck Mercuriadis and Tailwind Entertainment chief investment officer Philipp Saure point out that the island goes light on corporate regulation, not unlike the Cayman Islands, although investor protections are considered strong enough that it’s home to the most companies listed on the London Stock Exchange after the United Kingdom. Local laws make it easy to set up and run such collective investment funds, which pool money to purchase long-term assets, ranging from airports to wind farms, that are often overseen by other entities. (The island’s tax system isn’t a factor.) That helps Guernsey companies keep operating costs low, so almost all the money they raise goes to acquisitions.
They’re “a vessel for collective investment,” explains Craig Cordle, a partner at Ogier, a law firm that works with Hipgnosis in Guernsey. “Essentially, you’re enabling investors to get as close to the assets and the returns of those assets as they possibly can.”
That’s something more investors want as the music publishing market continues to heat up amid competition among these companies, other independent publishers and the majors. Hipgnosis, which pioneered this setup for music, raised $1.5 billion in a 2018 London initial public offering and additional subsequent offerings. Round Hill, which had its own London IPO in November, has raised $329 million so far; Tailwind is privately held.
This collective investment fund model comes with at least one potential downside: The fees that investment advisory firms collect don’t entirely depend on a fund’s performance. Hipgnosis and Round Hill’s advisers are paid based on that, as well as the funds’ net asset values. In the six-month period that ended Sept. 30, 2020, Hipgnosis paid The Family (Music) $4.9 million, double the amount from the same period in 2019.
“The way music is consumed is fundamentally changing the industry,” says Saure. That has already changed the value of music assets like publishing copyrights, so perhaps it’s only natural some of the companies that own them are changing, too. “I wouldn’t be surprised,” he says, “if there are a couple others that try to enter the space over the next two or three years.”
This article originally appeared in the January 30, 2021 issue of Billboard.