Kobalt Capital Ltd. (KCL) is managing a new fund with a capacity of $600m with which to buy copyrights.
The money represents the second fund in KCL’s history.
The company raised – and subsequently spent – over $350m for the same purpose in 2011.
The new $600m capacity is made up of $345m in equity commitments plus debt.
We know what you’re thinking: ‘Hang on a minute, isn’t Kobalt’s whole thing that it allows artists and songwriters to own their rights?’
That’s still true: the firm’s core business, Kobalt Music Group, remains a no-ownership administration and technology partner for thousands of songwriters, publishers and self-releasing artists – who all retain their musical IP.
“THIS MANAGED FUND WITH INSTITUTIONAL INVESTORS GIVES KOBALT CLIENTS THE OPTION TO SELL THEIR COPYRIGHT AND STILL STAY WITH KOBALT.”
WILLARD AHDRITZ, KOBALT
KCL, on the other hand, manages a completely separate fund amassed and owned by confidential private and institutional investors.
This is then looked after by KCL, which hunts for acquisitions that offer a good return – and then pulls any acquired assets into Kobalt’s administration setup.
Most of these acquisitions remain secret but a few of them are public domain: in late December last year, for example, Kobalt Capital’s fund acquired the songwriting catalogue of multi-platinum country act Dierks Bentley.
Other standout acquisitions amongst the $350m spent so far include the publishing catalogue of Nettwerk Music Group – while artists who have sold assets to KCL’s fund include The B-52’s (pictured), Steve Winwood and Fleetwood Mac’s Lindsey Buckingham.
Kobalt Capital’s latest $600m-cap investment fund is being led by UK pension scheme, RPMI Railpen (Railpen), along with other institutional investors.
KCL, a subsidiary of Kobalt, is a Financial Conduct Authority (FCA) regulated investment advisor.
“From day one, Kobalt’s position has been that we don’t own copyright because it creates a conflict of interest with our clients. I’m proud to say that we’ve shifted over $3bn in asset value back to all of our clients on our platform with this no ownership model,” said Willard Ahdritz, Founder & CEO of Kobalt and CIO of Kobalt Capital Ltd.
“When our clients do want to capitalize on the increased value, which Kobalt has created, this managed fund with institutional investors gives them an option to sell their copyright and still stay with Kobalt – it’s been a very successful model.”
“IF YOU ARE STUCK IN A CO-PUBLISHING DEAL OR A JV WITH [A MAJOR PUBLISHER] YOU USUALLY ARE ONLY ALLOWED TO SPEAK TO ONE FIRST-OPTION BUYER FOR YOUR ASSETS. WITH KOBALT, NO-ONE IS LOCKED IN.”
The $3bn in ‘asset value’ Ahdritz refers to is an estimate of how much extra money Kobalt’s clients have received by not giving away chunks of rights ownership to labels and publishers since the company was founded 17 years ago.
“This is a beautiful thing: our clients can leave our platform if they don’t like us,” Ahdritz told MBW. “In comparison, if you are stuck in a co-publishing deal or a JV with [a major publisher] you usually are only allowed to speak to one first-option buyer for your assets. With Kobalt, no-one is locked in.”
He added: “Kobalt exists to maximize cash flow. And if we are maximizing our clients’ cash flow, we are also maximizing the value of their copyrights.”
Not that KCL will splash the cash on any old assets: across the $350m invested by KCL’s first fund, Ahdritz estimates that the money only went to 25% of deals that were considered.
It’s Kobalt Capital’s job to carefully assess the potential return on investment in each case.
The music publishing business is seeing some vast multiples of late, but not all of them are impressing the market: last week, reports suggested that Canadian music rights firm Ole had failed to attract a desired sale price of $600m.
“Kobalt’s tech platform is one of the main reasons my copyright was able to amass that value. So when I recently wanted to sell a portion of my catalogue, I didn’t want to leave Kobalt.”
Lindy Robbins, multi-platinum songwriter
“Obviously with a bigger fund, we can look at bigger targets,” commented Ahdritz.
“Kobalt Capital is the only regulated music royalty fund in the world – it’s blue chip. After our first fund, we have a track record, and that is very important in investment community; it shows you’re solid, you’re trustworthy and you deliver on what you tell people.”
Multi-platinum selling songwriter, Lindy Robbins (Demi Lovato, Jason Derulo), is one rights-owner who ended up selling to Kobalt Capital’s first fund – partly to ensure her songs continued to be serviced by Kobalt’s administration tech.
“It’s pretty amazing to see the growth in value of my catalogue over the past eight years,” she said.
“I think Willard and Kobalt’s tech platform is one of the main reasons my copyright was able to amass that value. So when I recently wanted to sell a portion of my catalogue, I didn’t want to leave Kobalt.”
Johan Ahlström, CEO of Kobalt Capital Ltd., further added, “Having crossed six years of activity in the first fund we have made over 100 investments and delivered attractive returns to our investors.
“With the backing of prominent institutional investors, it validates our strategy and outlook for a robust music industry that is trending upward.”
Craig Heron, Deputy Investment Director at Railpen, said, “This opportunity provides us with just the type of long-term returns that we need to help us meet our mission statement to pay members’ pensions securely, affordably and sustainably.”Music Business Worldwide