On October 19th, after its shares plummeted to a record low following the abrupt cancellation of a planned dividend, Hipgnosis Songs Fund (HSF) launched a strategic review. Now, the troubled business has revealed new details about this review as well as plans to appoint a different auditor.
Merck Mercuriadis-founded Hipgnosis Songs Fund provided an update on the strategic review yesterday, weeks after pausing dividends and making a number of staffing changes. More broadly, these November developments have followed multiple years of operational difficulties and a late-October shareholder vote against the fund’s continuation.
And it’s with the fund’s future very much in the air that HSF has disclosed the initially mentioned information. Beginning on the strategic review side, Hipgnosis Songs Fund’s board, chaired by the former board head of Round Hill’s own songs fund, is preparing “to appoint independent advisers to conduct due diligence on” HSF’s assets, according to the relevant release.
Said due diligence is expected to produce “a strong knowledge base from which the Board will commence a process of identifying and bringing forward alternative proposals for the future of the Company,” the announcement message proceeds.
Additionally, HSF’s board has called on the company’s Blackstone-powered investment adviser, Hipgnosis Song Management (HSM), to propose “alternative terms for their future investment advisory arrangements.”
In brief, HSM has continued to collect sizable advisory fees even though it’s been years since HSF closed a catalog deal. Last month, amid the previously highlighted investor pushback, Hipgnosis Songs Fund said it’d decided against cutting HSM loose because doing so would constitute “an event of default” under its credit facility unless lenders had approved a new adviser beforehand.
“The Investment Advisory Agreement can be terminated, other than for cause, by the Company on not less than 12 months’ notice, with an additional one-time termination fee equal to one year’s advisory fee calculated on NAV as at the termination date,” HSF relayed of the far-from-ideal pact with HSM, part of which belongs to Mercuriadis.
Also ruffling Hipgnosis Songs Fund stakeholders’ feathers was (and is) a “call option” through which HSM can purportedly “acquire the Company’s [HSF’s] portfolio on termination of its contract.”
Bearing in mind these and related points – it was a third Hipgnosis entity, described as “a partnership between Hipgnosis Song Management and funds managed and/or advised by Blackstone,” that would have bought 29 HSF catalogs had investors approved the transaction – it’ll be interesting to see what the “alternative proposals” encompass.
Shifting to the audit front, HSF has acknowledged an ongoing “audit tender process” for the fiscal year ending on March 31st, 2024. PricewaterhouseCoopers has served as HSF’s auditor since 2019 but won’t throw its hat in the ring for the tender process, per HSF, which intends to confirm the successor “in due course.”
Finally, with its annual report having briefly addressed litigation against Mercuriadis and others stemming from the long-shuttered Hipgnosis Music Limited, HSF has reiterated that it, the veteran music manager, and HSM deny the involved “claims and intend to vigorously defend them.”
When the market closed today, HSF shares were worth about 71 pence each. Earlier this week, several of the fund’s directors as well as the aforementioned chairman revealed that they’d bought a cumulative 327,000 shares in the business.