PE Fundraising
Exclusive: Lyric Capital targets $500M with new music royalty fund
February 18, 2022
Music royalties-focused private equity firm Lyric Capital Group is raising a new $500 million fund to expand its portfolio as it seeks to capitalize on burgeoning investor interest in the growing, but still niche, asset class.
The firm is more than halfway toward its fundraising target and is in talks with investors for "subsequent closes," according to a person familiar with the matter. Lyric, which launched the fund in the third quarter of last year, is looking to wrap up fundraising for the vehicle in the second quarter, the person said.
Lyric did not respond to requests for comment.
Lyric's decision to launch a new music royalties fund reflects the growing appeal of the asset class, which is benefiting from the persistent growth of online streaming. Music catalogs and other royalty-generating entertainment assets provide a recurring income stream similar to a fixed-income asset and offer a potentially high return for investors willing to come to grips with the sometimes complicated financial models required to value them. They are also attractive to investors looking for assets with performance that isn't completely correlated with other markets.
Recent high-profile deals including Sony Music Entertainment's purchases of the song catalogs of Bob Dylan and Bruce Springsteen, the latter reportedly for $500 million, have shown the value of artists' bodies of work. And KKR's investments in the song catalogs of John Legend and Ryan Tedder, who has written for musicians including Adele and Beyoncé, show there's appetite in the private markets for the asset class.
However, music royalty investing is still not widely understood, and some investors shy away from it because of a catalog's potential to fluctuate unexpectedly as songs become more or less popular. There is also the risk that an artist could do something that hurts the value of their library of songs. Furthermore, many music royalty funds are new and some are small, which can be an obstacle to enlisting pension funds and other large institutional investors.
"People are now getting more comfortable with the asset class as they have seen the performance of music royalty funds," said Reece Torode, co-president of ICM Crescendo, the music royalty arm of ICM Asset Management.
Hipgnosis Songs Fund, a publicly traded royalties investment fund, said in June of last year that it had delivered a gross return of 15.7% based on its net asset value for the 12 months ended March 31, 2021. In November, Round Hill Music Royalty Fund returned 11.1% in its first year of existence based on its net asset value, according to a note from investment research company Edison Group.
The healthy returns have helped managers attract more money from institutions.
Lyric has had some success attracting institutional money. Last year, the New York-based boutique announced Canada's Northleaf Capital Partners had led a $500 million investment to purchase an interest in the firm's music royalty catalogs. Caisse de dépôt et placement du Québec, one of Canada's largest public pension funds, was a significant co-investor in the deal, according to an announcement.
Round Hill Music has also pulled in institutional investors. The New York-based PE firm closed its $291 million Fund III which included investments from endowments, foundations and pension funds. Round Hill's Fund I launched in 2012 and raised more than $200 million, while its 2018 vintage Fund II raised $263 million.
ICM Crescendo currently manages an open-ended fund with less than $50 million in assets raised mostly from family offices and retail investors and is seeking to grow.
In addition to swings in an artist's popularity, the value of a catalog could be affected by the popularity of a particular streaming platform or a dispute between a platform and an artist.
"One notable risk is around how these deals are being valued and structured," said Wylie Fernyhough, a senior private equity analyst at PitchBook. "It's a well-known asset, but until it has a longer track record or billions of dollars more are invested, it will remain somewhat niche."
In one recent example that illustrates the potential volatility of the asset class, Neil Young, who last year sold an interest in his song catalog to Hipgnosis, removed his extensive library of songs from Spotify in a dispute over the streaming service's deal to host a podcast by Joe Rogan, who has been accused of spreading vaccine misinformation. Young, whose music remains unavailable on Spotify, said in an open letter that 60% of the streaming income from his music comes from the service.
But despite the risks, the asset class is here to stay and likely to grow, industry participants say.
The emergence of new technologies that use music such as the metaverse and the continued growth of streaming and other online activity will fuel song use, generate new music revenue streams, and give the market substantial potential to grow, Torode said. Other streaming assets, such as YouTube creators' catalogs are also attracting attention.
Featured image by Michael Putland/Getty Images
The firm is more than halfway toward its fundraising target and is in talks with investors for "subsequent closes," according to a person familiar with the matter. Lyric, which launched the fund in the third quarter of last year, is looking to wrap up fundraising for the vehicle in the second quarter, the person said.
Lyric did not respond to requests for comment.
Lyric's decision to launch a new music royalties fund reflects the growing appeal of the asset class, which is benefiting from the persistent growth of online streaming. Music catalogs and other royalty-generating entertainment assets provide a recurring income stream similar to a fixed-income asset and offer a potentially high return for investors willing to come to grips with the sometimes complicated financial models required to value them. They are also attractive to investors looking for assets with performance that isn't completely correlated with other markets.
Recent high-profile deals including Sony Music Entertainment's purchases of the song catalogs of Bob Dylan and Bruce Springsteen, the latter reportedly for $500 million, have shown the value of artists' bodies of work. And KKR's investments in the song catalogs of John Legend and Ryan Tedder, who has written for musicians including Adele and Beyoncé, show there's appetite in the private markets for the asset class.
However, music royalty investing is still not widely understood, and some investors shy away from it because of a catalog's potential to fluctuate unexpectedly as songs become more or less popular. There is also the risk that an artist could do something that hurts the value of their library of songs. Furthermore, many music royalty funds are new and some are small, which can be an obstacle to enlisting pension funds and other large institutional investors.
"People are now getting more comfortable with the asset class as they have seen the performance of music royalty funds," said Reece Torode, co-president of ICM Crescendo, the music royalty arm of ICM Asset Management.
Hipgnosis Songs Fund, a publicly traded royalties investment fund, said in June of last year that it had delivered a gross return of 15.7% based on its net asset value for the 12 months ended March 31, 2021. In November, Round Hill Music Royalty Fund returned 11.1% in its first year of existence based on its net asset value, according to a note from investment research company Edison Group.
The healthy returns have helped managers attract more money from institutions.
Lyric has had some success attracting institutional money. Last year, the New York-based boutique announced Canada's Northleaf Capital Partners had led a $500 million investment to purchase an interest in the firm's music royalty catalogs. Caisse de dépôt et placement du Québec, one of Canada's largest public pension funds, was a significant co-investor in the deal, according to an announcement.
Round Hill Music has also pulled in institutional investors. The New York-based PE firm closed its $291 million Fund III which included investments from endowments, foundations and pension funds. Round Hill's Fund I launched in 2012 and raised more than $200 million, while its 2018 vintage Fund II raised $263 million.
ICM Crescendo currently manages an open-ended fund with less than $50 million in assets raised mostly from family offices and retail investors and is seeking to grow.
In addition to swings in an artist's popularity, the value of a catalog could be affected by the popularity of a particular streaming platform or a dispute between a platform and an artist.
"One notable risk is around how these deals are being valued and structured," said Wylie Fernyhough, a senior private equity analyst at PitchBook. "It's a well-known asset, but until it has a longer track record or billions of dollars more are invested, it will remain somewhat niche."
In one recent example that illustrates the potential volatility of the asset class, Neil Young, who last year sold an interest in his song catalog to Hipgnosis, removed his extensive library of songs from Spotify in a dispute over the streaming service's deal to host a podcast by Joe Rogan, who has been accused of spreading vaccine misinformation. Young, whose music remains unavailable on Spotify, said in an open letter that 60% of the streaming income from his music comes from the service.
But despite the risks, the asset class is here to stay and likely to grow, industry participants say.
The emergence of new technologies that use music such as the metaverse and the continued growth of streaming and other online activity will fuel song use, generate new music revenue streams, and give the market substantial potential to grow, Torode said. Other streaming assets, such as YouTube creators' catalogs are also attracting attention.
Featured image by Michael Putland/Getty Images
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