Policymakers' responses to the global financial crisis was to instigate a policy of very low interest rates and of quantitative easing, which pushed bond yields to record low levels.
From these extraordinary economic and market conditions emerged, according to David Merriam, investment manager at Evelyn Partners, "a lot of alternative income products".
He notes: "Clients who were used to 5 or 6 per cent from income-paying assets moved into other areas, and there were lots of esoteric investment trusts launched, including in the music royalty space."
Now, however, sentiment has soured quite dramatically, as prospects for long-term returns look ever more diminished. It is possible two trusts, who were initially successful, could cease to exist entirely.
Two investment trusts came to market focused on buying the back-catalogues of big name musicians: Hipgnosis and Round Hill Music.
The former of these launched in 2018, by Merck Mercuriadis, a former manager of Beyonce, and Nile Rogers, the music producer behind many big hits in the late 20th century.
The Hipgnosis trust started well and raised lots of capital, and its market cap rose well above £1bn.
Performance has been tepid however, with the trust’s share price down 21 per cent over the past five years, despite initially performing well.
In October, shareholders will vote on whether they wish to wind up the trust, and return the capital to investors.
It remains more than £1bn in size.
That vote comes in the immediate aftermath of the other music royalty fund, which launched in the aftermath of the global financial crisis, Round Hill, which is £450mn in size and also recently agreed to be taken over.
Data from our sister publication Asset Allocator indicates that some of the largest wealth managers in the country had placed their client’s capital into these assets; both of the trusts mentioned above are owned by three of the allocators that publication covers.
So what was the appeal?
Merriam says: “The trust had an initial appeal for investors as the yields were north of 4 per cent. The advent of music streaming meant that songs could have a longer lifespan, while there were also changes in how musicians were paid for their music, which I think could be a long-term trend.”
But he says that while there may have been good underlying reasons to own music royalties, and believes the sector will continue in some way, the structure and management of the assets in the products that advisers and their clients could access “has been poor”.
He said that in addition to the money raised from investors, “both of the trusts borrowed to buy music catalogues, then they would, during a period of buoyant equity markets, issue new shares at a premium to repay the debt.
"But when interest rates rose, the debt costs rose, and that happened at the same time as equity markets fell, so they were not able to issue shares to pay down the debt they had.”
