Hipgnosis Song Management returns to Songs Fund Board: “Will Vigorously Protect [Our] Interests'

Hipgnosis Song Management (HSM), the investment adviser to troubled music rights fund Hipgnosis Songs Fund which has come under scrutiny over its handling of accounting issues, issued a statement on Monday (April 22nd) saying it has “been repeatedly accused of many issues affecting the [Songs Fund] which was not HSM's responsibility” and that “it will vigorously protect its interests if the [Songs Fund board] aspires to end' as an investment adviser.

The statement comes after a flurry of headlines in the past month dating back to the March 28 publication of a report by Shot Tower Capital which claimed that HSM, as investment adviser to the Hipgnosis Songs Fund — which owns all or part of the rights to song catalogs from the Red Hot Chili Peppers, Shakira and Neil Young, among others — overstated its revenue, the breadth of its assets and its earnings in disclosures to investors and regulators. That followed a vote last October in which shareholders rejected for the first time a proposed sale of part of the fund's song catalog and a subsequent vote no to continue — the equivalent of a vote of no confidence — in the fund's previous board and its investment HSM consultant. urging the formation of a new board of directors with a new chairman, Rob Naylor. (Merck Mercuriadisthe fund's founder, moved from HSM's chief executive to chairman in February.)

In recent days, two potential takeover bids have been presented to Hipgnosis Songs Fund's board: one from Concord for $1.4 billion and the other from Blackstone, which is the majority owner of HSM, for $1.5 billion . The original Concord offer proposed that the issuing company would take over the management of the fund's catalog from HSM, which would require 12 months' written notice. remuneration equal to one year of service; and, at the end of that year, to allow HSM to exercise a call option to purchase the portfolio assets in excess of any competing bid, pursuant to prior filings.

In the new statement, HSM states that it would exercise this call option if necessary.

“Based on extensive legal advice, we are confident that the [Songs Fund] has no legal reason to terminate our relationship without being subject to HSM's contractual rights contained in [investment advisory agreement, or IAA]”, says the announcement from Hipgnosis Songs Management. “HSM explained this in detailed legal correspondence with [fund]. The [fund] has not responded to HSM regarding the legal arguments it presented.

“HSM will vigorously protect its interests if [fund] intend to terminate the IAA,” the statement continued. “We will use all necessary means to defend our contractual position and our interests. It is important that shareholders, songwriters and artists understand that HSM acted appropriately and professionally in our role as an Investment Adviser and fully in accordance with the IAA.

“To be clear, it was the [fund] to purport to terminate the IAA and/or assign HSM's responsibilities under the IAA to a third party, HSM and its majority shareholder are fully committed to protecting all of our rights under the IAA, including the right to exercise the call option for its acquisition [fund]his assets.”

Earlier today, the board of Hipgnosis Songs Fund said that if Blackstone formally submitted its $1.5 billion takeover bid for the company, it would support that option over Concord's bid from last week. And given Blackstone's majority ownership of HSM, it would obviously follow that HSM would then continue in its role as an investment adviser, meaning HSM would not have to exercise its option at the end. A Blackstone bid is essentially the same as a call option.

Further offers may still emerge as the situation continues to unfold. The next step will be a meeting on June 10, at which shareholders will vote to approve whatever offer is formally submitted.