The investment fund’s music portfolio was devalued, resulting in a decline in its shares; a sell-off or breakup is imminent.

An additional bad note from the Hipgnosis Songs Fund. The investment trust made a significant error in its highly anticipated announcement regarding the estimated value of its catalogue of compositions by Blondie, Red Hоt Chili Peppers, Shakira, and others, wherein the decimal point was inadvertently positioned. It should have read 92p per share, but it read 0.92 pence per share. Thus, a correction ensued.

Long-term shareholders must fervently desire for the correction that Hipgnosis had never been listed on the stock market prior to 2018. When compared to the initial price of 100p, the revised net asset value appears unimpressive rather than startling; however, this represents only a portion of the entire picture.

Prior to this, the previous appraiser’s estimate of the new assets six months ago has been reduced by 26%. Various methodologies yield distinct results; however, a decline from approximately $2.6 billiоn to $1.9 billiоn is a significant one. Furthermore, Hipgnosis further stated that tax charges that might be incurred if the assets were sold at the revised price are not factored into the valuation. Thirdly, the board stated that the reduced amount necessitates “no dividends for the foreseeable future.” This is a disgraceful state of affairs for a fund whose purpose is to provide investors with a steady income stream through royalty payments generated by a diverse portfolio of compositions.

When one considers the aforementioned elements, in addition to a dispute with the fund’s investment adviser, a firm majority-owned by Blackstone and managed by the pioneer of hipgnosis, Merck Mercuriadis, it becomes clear why the shares’ market price dropped to 58p, an 8% decrease on the day.

The current concern is how the board, which has undergone significant changes since supervising the acquisition of the music, plans to rectify the situation. Please revisit at the conclusion of the month to ascertain the response from chairman Robert Naylor; however, the current stance of suspending dividend payments in order to reduce debt appears to be an untenable long-term approach. The vote against maintaining the trust in its current guise last autumn was, in essence, a vote in favor of more radical policies.

Thus, a sale of the entire or a portion of the song catalog remаins. However, there is a small irony in this situation: shareholders voted against the sale of 65,000 compositions for $440 million last year, in part because the discount to book value was so steep. The discount appears more reasonable in light of the revised valuation, even though the transaction in question only affected one-fifth of the portfolio.

Exist interested parties in a transaction of greater magnitude? Well, Blackstone, the prospective purchaser in the $440 million transaction that was thwarted, may wish to attempt again; however, the previous attempt was hindered by the perceived cоnflict of interest arising from its ownership of the investment adviser Hipgnosis. Assessing the level of competition among private equity and investment houses in an illiquid market is challenging. This is one of the reasons why this particular category of “alternative” assets appears unsuitable for public markets, in addition to the valuation complexities involved.

But a breakup in some fashion, with the intention of restoring the balance sheet’s ability to pay dividends, appears to be the most viable course of action in an effort to mitigate the harm. The absence of dividend payments by an income fund is illogical, as indicated by the declining share price.