The investment adviser of Hipgnosis Songs Fund (HSF), Hipgnosis Song Management (HSM), said “aspects” of its recent due diligence report conducted by Shot Tower Capital are “factually inaccurate and misleading”.
Last Thursday (28 March) Shot Tower Capital, which was commissioned to undergo an independent valuation of HSF’s portfolio as well as a due diligence report last year, found the trust’s portfolio is valued at $1.948bn (£1.55bn) – 26% lower than HSF reported in its half-year results in December 2023. HSF said on 18 March this year – 10 days before the publication of the report – that a double-counting error in HSM’s accrued revenue had occurred, which led to a 7.6% reduction in its operative NAV.
Shot Tower Capital’s broader due diligence report found that HSM had “failed to perform to music publishing industry standards” in terms of underwriting acquisitions and managing those rights effectively; providing investors with accurate financial statements; and managing conflict between the adviser and its board.
See also: Investors lose over £200m in a year as the price of Hipgnosis Songs Fund collapses
Among other findings, Shot Tower Capital stated 75% of the trust’s investments missed their growth forecasts by an average of 23% despite “aggressive” projections from the adviser; that acquisition files were missing key documents; and that the due diligence data they provided was “inconsistent”.
It also concluded that allegations of HSM ‘cherry-picking’ certain music catalogues, which were of higher value than other holdings and sold to Hipgnosis Songs Capital (HSC) – a fund managed by the same investment adviser – placed HSM in a “conflicted position” when recommending the move to shareholders.
In response to the report, which HSM said it first saw on the evening of the 27 March, a spokesperson stated: “Throughout the life of the company, HSM has worked constructively, and in good faith, with the company’s board and other advisers (including legal, audit, tax, financial markets and valuation) to deliver the best outcome for the company’s shareholders.
“Each adviser was recruited by the company’s board to advise on their specific area of expertise and with clear areas of responsibility.”
HSM added that, given the summary report was shared one day before its publication, that it has “not yet had time to review it in detail”.
“However, there are aspects of the report that HSM strongly disagrees with and considers to be factually inaccurate and misleading. HSM will respond to the company’s board in due course.”
