Fund of the week ‘Our shares in a Beyoncé song rose by 2,400pc’

Harry Brennan learns how Merck Mercuriadis, a friend of music royalty, makes a lucrative living from owning some of the best songs ever written

The Hipgnosis Songs Fund buys nothing but music. It owns more than 13,000 songs by artists such as Justin Bieber, Taylor Swift and Paul McCartney. Around 1,000 were number ones, while 8,000 others made it into the top 10. In 18 months, the investment company has amassed more than £700m in assets and has grown to become the 58th largest-yielding stock on the FTSE 250 index. We spoke to the fund manager, Merck Mercuriadis, about his success and how the music industry is making money again.

HOW DOES THE FUND WORK? All the songs we buy are incredibly successful and we are able to buy them at very cheap prices because of the disruption to the music industry during the era of illegal downloads.

Now things have come full circle and we have online streaming and the revenues from legal downloads is growing strongly. It provides us with incredibly reliable and predictable income streams that last. Decades-old songs such as Journey’s Don’t Stop Believin’, Bon Jovi’s Livin’ on a Prayer or Chic’s Good Times have and will continue to provide us with income for years, irrespective of movements in global markets. No matter what is going on in the world, if people are living their “best lives”, they are doing it to a soundtrack that they love.

HOW DO YOU MAKE MONEY? Typically we buy these song rights and catalogues from administration houses who have let these assets languish over the years. We then proactively work to place these in adverts, movies and video games, get contemporary artists to cover them or remix them and make and promote online playlists to encourage people to listen to our songs. We call this “sync”. This makes us cash on its own, but also brings these songs back to life and generates sales to new and old listeners. It also provides a massive boost to the underlying value of

Merck Mercuriadis

Don’t Stop Believin’, Journey – This iconic song has had amazing success for almost 40 years but keeps coming back. Featuring in the final credits of The Sopranos helped boost the song’s value years after it was written. We curate these assets with care, we don’t want to cheapen them by placing them in a terrible ad for a firm that doesn’t fit with the prestige of the music.

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telegraph.co.uk/ markets-hub the song rights, as the market and our independent valuers can see what they are truly worth, providing our investors with some capital growth, too. We also receive income in the form of royalties from the live performance sector.

Revenue is split roughly 50pc from streaming, with the rest coming from sync and from licensing where our songs are played in public, in places such as restaurants and shops. Live performances make up around 3pc of revenue, and this has taken a hit as shows have been cancelled this year. But the growth in streaming is massively outpacing this decline.

WHO WOULD BUY SHARES IN THIS FUND? We have institutional investors, including the Church of England, that are attracted by the income, which is removed from the ups and downs of most markets. We currently yield around 5pc.

But we are attracting more DIY investors. They want income outside of the traditional sources that is reliable, and comes with capital growth. These assets will be worth two to three times what they are worth today in less than a decade and the fund will double in size in the next two years.

WHAT MOVES THE SHARE PRICE? The main thing that would dramatically affect the share price of the fund would be a big change in the streaming world – anything systemic in the way people consume music. So when Spotify attracts more users than ever before and its shares rocket, we benefit too.

WHAT’S NEXT FOR THE INDUSTRY? There is untapped revenue to come from Asian and emerging markets. They have mostly listened to Western music illicitly or not at all. But as these countries grow richer, more people are turning to streaming.

WHAT WERE YOUR BEST AND WORST INVESTMENTS? XO, co-written by The-Dream for

Beyoncé was one of our best and exemplary of how we can add value.

We bought a 25pc share of the song for $7,000 (£5,200) – a very low price. We worked with Beyoncé’s team and got the song placed in a Louis Vuitton commercial. This earned us $125,000. The song became more popular and the value of our share shot up to $175,000.

I’ve never bought a bad song, sold a song or lost money on a song to date.

DO YOU HAVE MONEY IN THE FUND? I put in £1m at the start and put in £100,000 each time we fundraise.

What £1,000 invested at launch would be worth today

WHAT IS YOUR INCENTIVE? I get a bonus and management fee based on share price performance.

WHAT WOULD YOU HAVE BEEN IF NOT A FUND MANAGER? A music producer.