A technology firm is shopping musical assets to super-rich investors. The new investment class offers juicy returns – and unconventional risks.
Wealthy investors are hunting private markets for return, as a new push from UBS illustrates. Private debt, hedge funds, art, real estate, cars, cryptocurrencies – the asset classes are enjoying a surge in popularity among the super-rich, who are looking beyond traditional markets due to record-low interest rates.
An asset class based on rights to famous tunes like Led Zeppelin's «Stairway to Heaven» or Queen's «Bohemian Rhapsody» is growing in popularity with family offices and other conduits to the ultra-wealthy, or those with more than $50 million in assets. Music rights – typically held by artists or songwriters – are grouped in catalogs, and can be bought and sold.
Big Data Platform Fund
In Switzerland, wealth managers have largely sidestepped the asset class until now, though rich investors like Rainer-Marc Frey are believed to have invested in catalogs. Utopia Music wants to change that, vice-chairman David Schulhof told finews.asia. He is also head of music at U.S.-based production firm AGC Studios.
«We've built a big data platform that massively simplifies the commercial use of copyright catalogs, giving investors the opportunity to participate in this business,» Schulhof said. Specifically, Utopia is setting up an $100 million fund, expected this quarter.
High Fees vs Juicy Returns
The notion of bundling intellectual property is relatively new: Schulhof said two of 20 participants at a recent investor event held by Utopia knew of the instruments, but most showed interest. As with many opaque private market investments, returns can be lucrative, but risks are high.
Utopia predicts that returns on music catalogs can hit 17.9 percent annually – and aren't correlated to wider financial market swings. The investment is priced akin to the «two and 20» often commanded by hedge funds: 1.5 percent annual management fee, plus 20 percent on performance.
Royalties Gap
Music catalogs are also highly illiquid: there is no secondary market, nor is one planned. Utopia's fund locks investors in for specific periods of time. Schulhof argues the risks are negligible: «The biggest risk is music piracy. When people download music illegally, they not only harm the artists, who lose income as a result, but also the copyright holders..»
In addition, radio or television broadcasters frequently don't report playing individual songs. Utopia adviser Alexander Brunner said the company met with a member of a renowned Swedish group. The artist received royalties from 60 countries – but Utopia's technology showed that the songs are played in 160 countries.
Evaluation in Real Time
«Our Delta software scans the Internet, including digital music services and all the web radios. This allows us to evaluate in real time whatever is being heard wherever and increase royalty income by 10 if not 30 percent.» Utopia wants to offer the service to other owners of intellectual property – for a price.
