When It Rains, It Pours: Hipgnosis Songs Fund Takes a 7.6% Valuation Hit Following Accounting ‘Error’

Hipgnosis Songs Fund valuation drops
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Hipgnosis Songs Fund valuation drops
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Photo Credit: Atwena Goodman

Hipgnosis Songs Fund takes another valuation hit following an ‘error’ in accounting a critical financial metric.

It’s been a harrowing year for London-based Hipgnosis Songs Fund. The most recent act to emerge from the clown car: yet another valuation hit for Hipgnosis following its so-called “error” in accounting.

The announcement emerged this morning before trading began on the London Stock Exchange, informing investors that Hipgnosis had reported the “identification of an error” in the way accrued revenue was applied in calculations of the company’s “operative NAV.”

The result is a further 7.6% reduction in Hipgnosis’ valuation — and that’s on top of the 26.3% cut that it suffered based on revaluation from independent firm Shot Tower Capital two weeks ago.

Meanwhile, Hipgnosis Song Management — a separate Hipgnosis arm acting as investment advisor to the Songs Fund proper — has issued its own statement on the so-called error, accusing Hipgnosis Songs Fund of trying to “incorrectly place blame” for the latest revaluation.

“As the Operative NAV is a key valuation metric in defining the market capitalization of the Company, the Company has almost certainly been overcharged investment advisory fees by the Investment Adviser. The Board has reserved all the Company’s rights against the Investment Adviser.”

While it’s unclear whether a miscalculation has actually taken place — and even more unusual for a separate formal announcement to be made about it in the midst of the ongoing “strategic review” at Hipgnosis — the term “reserved all rights against” is corporate speak for “we may take legal action.”

Notoriously, song royalties can take an extraordinarily lengthy amount of time to actually move money through the system. The complexities lending to the slow processing of royalty payouts means that sometimes the amount that finally hits the bank may not account for every instance of song use, as some residuals may still be caught up in red tape. So did a miscalculation actually take place, or is the company’s methodology not accounting for song plays that still need to be paid out?

Last year, Hipgnosis Songs Fund detailed the five Alternative Performance Measures (APMs) it uses that had changed throughout the year. While that practice isn’t uncommon, it makes for some “adjustments” — not technically an “error” — that typically will come out in the wash.

Whether an adjustment or an error, the problem only further serves to illustrate the rocky nature of the relationship between Hipgnosis Songs Group and its subsidiaries.