James Carthew for Investment Week, 30 April 2024:
The investment companies sector was riding high – the median fund was trading on a 5.8% discount to net asset value (this figure was 14.5% at the end of March 2024), and including SONG there were 22 new issues that raised £3.6bn in 2018.
The last IPO of any size was what is now Asia Energy Impact in December 2021, and that has been a disaster.
The big shift since then has been in the economic backdrop – interest rates in the US were under 2% in July 2018 and in the UK, they were just 0.75%. Equity markets had been strong and so when SONG came along offering a target 5% dividend yield from investments that would not be correlated to equities, investors piled in.
Inevitably, the low interest rate environment was reflected in the price that the manager was prepared to pay for catalogues of songs.
There was some scepticism about the fund from the outset. Song royalties represented an unfamiliar asset class, and it did not help that for a couple of years (until the launch of Round Hill Music) SONG was the only fund of its type, so there was nothing to benchmark it against.
Songwriters tend to be less well-known than the artists performing songs and the UK investor base was perhaps less au fait with some of the US artists represented in the portfolio anyway.
Concerns were raised about how quickly interest in some of the newer songs in these catalogues would fade and some commentators started to question whether SONG was overpaying.
For me, the greatest frustration was with the lack of clarity in the numbers. The first few sets of results were particularly unhelpful. I decided to rely on cash flow figures rather than the P&L account…
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