Hipgnosis' accounting led to problems at the music catalog fund. Here's how it happened, according to a new report by Shot Tower Capital.
Accounting scandals may not get the public’s attention like a raid by Homeland Security, but questions about the quality of a publicly traded company’s books is a serious matter. This week, an, the London-listed company that played a major role in turning music rights into a stable, attractive asset class, confirmed what some analysts and shareholders had long suspected.
To be clear, Shot Tower did not explicitly comment on the investment advisor’s intent in using certain accounting practices. The data-heavy report offers analysis, not speculation. But the report, part of the board of directors’ effort to regain shareholders’ trust, made clear that annual revenue was “materially” overstated and laid out numerous examples where the fund’s numbers didn’t reflect the reality behind its assets.
RTI also came into play with the proposed sale of a portion of the portfolio to Hipgnosis Songs Capital, a joint venture of HSM and investment firm Blackstone. The catalog was presented to shareholders as having a net purchase price of $424.7 million . With pro-forma annual revenue of $24.1 million, HSM assigned a 17.6x multiple to the proposed sale. But Shot Tower believes the catalog’s multiple should have been 14.
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