Hipgnosis Made Mega Deals for Song Catalogs. Its Future Is Unclear.

The future of Hipgnosis Songs Fund, the British company that helped kick off the music industry’s trend of top-dollar deals for artists’ song catalogs, is in question after its shareholders on Thursday rejected a $440 million divestment plan and voted against maintaining the company’s current structure.

Hipgnosis, founded by Merck Mercuriadis, a former manager of stars like Beyoncé and Elton John, was listed on the London Stock Exchange in 2018 and pitched investors on music rights as a special kind of financial asset that is “more valuable than gold or oil.” Since then Hipgnosis, along with a sister fund backed by the private equity giant Blackstone, have spent more than $2 billion to acquire music catalogs from Neil Young, Shakira, Justin Bieber, the Red Hot Chili Peppers, Blondie and other artists and songwriters.

But in recent months Hipgnosis has come under increasing pressure from dissatisfied investors who have seen the company’s share price drop in comparison to its so-called net asset value, an estimate of its catalogs’ worth prepared by an independent firm. Its share price closed at 74.20 pounds on Thursday, down about 43 percent from a high of 129.20 in November 2021. Its market capitalization is about $1.2 billion.

The company also shocked investors last week by suspending its quarterly dividend, after saying that Citrin Cooperman, the independent firm that values its assets, had reduced the amount the company was expected to receive as a result of an industrywide royalty rate adjustment in the United States. Citrin Cooperman, the company said, had calculated that Hipgnosis would receive $21.7 million in retroactive payments, but recently reduced that to $9.9 million, and Hipgnosis said it had suspended the dividend payment — which had been announced at 1.3125 pence, or about 1.6 cents, per ordinary share — to remain compliant with its debt covenants.

The global rise in interest rates has altered the calculus of many top-dollar catalog deals, but the investors in Hipgnosis have also grown concerned about the company’s management.

“No investor ever knew that the fund was being managed so close to the edge that they were very close to tripping the debt covenant,” Sachin Saggar, a research analyst at Stifel, said in an interview.