In This Issue

1. Our Top Story - Waking Up From Hipgnosis?

2. News Roundup - Real estate, contemporary art, and more

3. New Resources - New Vinovest Overview

4. Site News And Commentary

‼️ TOP STORY
Waking Up From Hipgnosis?

Five years ago, Wall Street and the traditional investment community got into music royalties in a big way.

The Rise

The Hipgnosis Songs Fund was founded as an investment vehicle for music rights on the public markets (it’s listed on the London Stock Exchange). The fund used public markets to raise money, which it then used to purchase music rights.

In exchange for investing into the fund, investors hoped to receive regular dividend payments that could grow over time and be uncorrelated to most risk assets.

Basically, people don’t stop listening to music based on whether the economy is doing bad or good, so the songs can keep producing earnings, rain or shine. At the same time, the music industry was seeing growth from the rise of streaming and digital royalties.

Their pitch was successful in a big way. Blackstone got involved and it grew to hold more than $2.5B in assets.

The Fall

Hipgnosis launched and scaled their fund during the low inflation and low interest rate environment of the late 2010s and early 2020s. This environment, along with increased competition for music rights, would set the stage for the current conundrum.

Here’s what the problems roughly shape up to:

• Yields from assets acquired during a boom in prices being lower

• Debt taken to scale needing servicing

• Rising inflation and interest rates provide competition for safe yields and cause investors to value the future earnings of the fund differently

• The share price comes under pressure causing difficulties for issuing new shares to purchase more music rights

That would be pretty tough under normal circumstances, but unfortunately these aren’t normal circumstances. The Hipgnosis fund had a provision that after 5 years (this year) investors would have to vote on whether to continue the fund for another 5 years.

As part of positioning for this, we previously reported a proposal from the Hipgnosis management team to try to sell ~$440M in rights. That vote failed.

So too did the vote to continue the fund for the next 5 years.

That leaves the board with 6 months to figure out a proposal and try to work something out with shareholders. If not, the entire fund might get sold off.

Also, the management team continues to get shuffled up and the Hipgnosis Songs Group CEO just got sued for alleged sexual assault and harassment of a colleague in the early 2000s.

Given everything that’s going on, they’ve paused dividend payments until the new fiscal year, which starts in April.

Potential Impact

I think music royalties are still an interesting and viable alternative asset class, regardless of how things with Hipgnosis shake out. In my opinion there are two likely outcomes, none of which really changes anything for retail investors.

One, the board and shareholders reach some type of continuity agreement. This may involve a sale of some of their assets, as the management team was previously looking to do.

Two, they move to sell the fund. In this situation it likely gets gobbled up by a large financial institution and we don’t really hear anything else about it afterwards. Blackstone is an obvious candidate given they already own a part of it.

Even in the unlikely scenario that it turns into a forced fire sale of billions of dollars in music rights, the size of these transactions is simply unlikely to filter down to us in a meaningful way. Perhaps there could be a trickle-down effect that leads to prices falling in general. That could just make it easier to get higher-yielding assets or it could remove some supply in the market as rights holders wait for conditions to improve before pursuing asset sales.

ALTERNATIVE INVESTMENT NEWS ROUNDUP
🏠 Real Estate

Lofty

A few weeks ago we talked about what was the most unique and interesting offering on Lofty so far. Well, there’s a new contender for that title.

How is fractional ownership of a unit in a hotel development in Tulum, Mexico for unique? Tokens for this start at the standard $50.

Towards the end of September they also provided updates on lease renewals for 18 properties. Ten of those had leases renewed at higher rental prices. None mentioned any cuts to rental rates. As a tiny glimpse at inflation, it suggests there is still pressure in shelter costs.

Arrived

Arrived has completed the process of updating the property managers for several vacation rental properties. Based on the email, here’s the breakdown for all the properties that transitioned:"

Boutiq property management

• Orchard

• Sugarcreek

• Lakeridge

• The Coolbaugh

• The Coquina

• The Hammock

• The Palm

• The Pasquin

Arrived in-house property management

• The Smokey

• The Pointbreak

• The Myrtle

• The Pinkshell

• The Sandbar

• The Seafoam

• The Tiara

• The Knoll

• The Seafoam

• The Loop

• The Vita

At the moment, we haven’t seen any information on what the fees are for Boutiq. Once we see that, we’ll have a better understanding of what the direct financial impact might be.

If you’re interested, Arrived posted this video discussing the transition to Boutiq property management.

Landa

Landa made a few product improvements to more easily highlight the financing of a property and your history of dividend payments. They also added an “education center” for users.

They also shared they had crossed $1M in total dividends distributed. Lend, their latest offering, also crossed $650K raised from investors.

Lend is interesting in part because it could be part of a vertically integrated real estate investment platform. There are investors on the platform that own the equity and investors that own the mortgage as well.

Lastly, their promotion that provides 10% cash back for investments of $1000 or more into IPO properties has returned (terms and conditions here).

🎨 Other Assets

Contemporary Art

Is the contemporary art market hot or cool? Based on a recent article from Bloomberg, things appear to be cooling. Research from Art Basel and UBS found that there was a nearly 67% decline in the number of collectors saying they regularly buy artwork priced about $1M.

The article also cites things like declining portfolio allocation to art in 2023, collectors’ reliance on financing for purchasing (something that only becomes less appealing as interest rates rise), and substantial drops for top-tier contemporary artists at auctions.

That sounds pretty compelling, unless you’ve invested on Masterworks. The company has taken to sending emails about significant auction milestones, and there were a couple this week. Joan Mitchell blew her previous $16.6M auction record out of the water with a $29.1M sale. Pablo Picasso had a work go for over $139M at auction as well.

Maybe those were two anomalies amongst a broader trend of decline. Time will tell, but the art market is harder to gauge than a lot of others given the uncertainty around auction performances and limited data on art sales.

Fundrise

Fundrise announced that dbt Labs was the latest addition to their Innovation Fund’s portfolio. The company makes a tool called dbt, which is a key piece of infrastructure in data and AI applications. Read the full blog post for more information about the company and the investment.

FranShares

FranShares shared some updates on the progress of their TNT fund.

Their first Teriyaki Madness location is off to a great start with its performance ranking within the top 15 locations nationwide.

The Smash My Trash locations have also been fully launched in Rhode Island and New Orleans. This is also off to a strong start, and the FranShares team has already started adding capacity.

In early 2024 audited financial statements will be available for investors.

Republic

Republic announced on X that they had entered into a partnership with Capchase. The post and link have almost no specifics on how the partnership itself works. However, the general gist appears to be that Republic companies can now leverage Capchase for financing.

Yieldstreet

Yieldstreet’s Prism Fund stockholders voted to effectively clear the way for the fund to invest in collateralized loan obligations (CLOs).

ANote Music

ANote announced the debut of their loyalty program. Backstage Pass functions based on web3 (crypto) utility tokens. For those willing to jump in, the program will:

They also shared on X that there are 4 new catalogs coming to the platform. They’re set to debut from November 17th through December 8th. We don’t have official stats, but this seems like a record amount of catalogs debuting on the platform.

📚 NEW RESOURCES
Vinovest Overview

As promised, we’ve got a new platform overview available for you.

Vinovest is one of the more well-known places for investing in wine and whiskey. They offer “Managed” accounts for automatic, robo-style investments or a self-guided “Trading” account for wine.

Vinovest takes a different approach than many other platforms, for better or for worse.

It’s not a fund and it’s not fractional. You actually own the individual wine bottles and whiskey casks in your portfolio. Vinovest just handles procurement, account management, the investment platform/app, storage, and insurance.

That’s pretty neat, but the main downside is that they charge fees for all of that, monthly. Unlike other types of offerings, and Vint’s (comparison here), you actually have to keep your Vinovest accounts (Managed wine, Managed whiskey, and Trading Wine are all separate accounts) fed with cash each much to cover the fees.

There is a secondary market for wine, but liquidity is not reliable. So it’s always best to hold until the asset reaches an ideal selling window, which can be 10+ years or more.

Overall it’s an interesting platform for wine and whiskey investing. It’s by far the most passive option we’ve covered so far. If you’re interested in the asset class, it’s worth taking a look at.

Take a look here

🌐 SITE

In the last two weeks, I got the new Vinovest overview out. I also worked on a few things behind the scenes trying to speed things up.

Over the next couple of weeks, I’m planning to start building out a Terms page to provide some quick/simple explanations to common terms that come up in alternatives.

I’ll also be starting work on a new platform overview and maybe a couple of analysis / data pieces as well.

If you have any feedback about the content you find the most useful or something you would like to see us cover, please feel free to share your feedback!