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Hipgnosis Song Fund’s Accounting Leads to Catalog Fund’s Big Problems.

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TLDR:

  • Internal report reveals accounting discrepancies at Hipgnosis Song Fund
  • Accounting practices overstated revenue and inflated portfolio valuation

An internal report released by Hipgnosis Songs Fund detailed how accounting practices led to significant problems at the music catalog fund. The report, conducted by Shot Tower Capital, highlighted various discrepancies in accounting and financial projections, including the overstatement of revenue and inflated portfolio valuation. These issues raised concerns about the investment advisor, Hipgnosis Song Management (HSM), and its internal operations.

One key finding of the report was the misclassification of right to income (RTI) revenue, which was included in annual revenue figures when it should have been an adjustment in the purchase price. This led to “double counting” and inflated income levels in 2021 and 2022. Additionally, the report highlighted changes in how accrued revenues were accounted for in fiscal 2022, which raised concerns about breaching lender covenants and misrepresentation of organic growth metrics.

The report also raised questions about the valuation of individual catalogs within the portfolio, with a significant variance in the overall valuation of the portfolio. Despite these issues, shareholders seemed unfazed, and the share price of Hipgnosis Song Fund saw an 8.3% increase following the release of the report. The future trajectory of the fund’s share price will likely depend on how shareholders perceive the board’s response to the report and the actions taken to address the accounting discrepancies.

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