Music

Morgan Stanley Invests Over $700 Million to Buy Catalogs With Kobalt

Kobalt, the digital-focused publishing administration company, said on Wednesday it is partnering with Morgan Stanley to invest more than $700 million into music IP in the next few years, the latest move by a Wall Street financial firm to get in on song catalog investing. The partnership will see Kobalt managing the creative, sync, licensing, administration and investment services for the copyrights that are purchased.

The deal, which was advised by Goldman Sachs, marks Kobalt’s return to managing investment for outside capital. Previously, Kobalt had two funds it worked with under Kobalt Capital, its investment management arm, both of which were sold in recent years. Kobalt’s first fund contained over 33,000 songs, including songs recorded by Lindsey Buckingham, Steve Winwood, the B52’s, 50 Cent, George Benson, Bonnie McKee, Nelly and Skrillex. It sold to Hipgnosis Songs Fund in late 2020 for a price tag of $323 million or 18.3 times the net publishers share, and it realized a $20 million gain for Kobalt. (Hipgnosis Songs Fund recently sold a portion of these rights worth around $25 million back to Kobalt.) While it was the biggest sale for Kobalt at the time, the first fund represented less than 30% of Kobalt’s IP holdings at the time.

The second fund, Kobalt Music Royalty Fund II, sold to an investment group comprising of KKR and Dundee Partners the following year for $1.1 billion. To manage the investments of the royalty fund as well as other IP previously acquired by KKR, the partners formed a platform Chord Music Partners, which tapped Kobalt Music Publishing to continue to handle publishing administration for the works. The fund is believed to have included the SONGS publishing catalog, Insieme Music catalog, which it acquired from Glassnote, and the David Hodges catalog.

Since that sale, Kobalt has not worked with outside money for catalog acquisition.

Outside of Kobalt Capital, the publishing administrator, helmed by chief executive Laurent Hubert, has made a number of other major changes in its business. In 2021, it also sold off AWAL, the artist services company and distributor to some of music’s most successful independent talent, and its neighboring rights operations to Sony. In September 2022, following reports of its first-ever profitable year, Kobalt sold a majority stake to Francisco Partners.

“Kobalt is a pioneer in investing in music, increasing the value of copyrights, and creating music as a viable asset class,” says Hubert. “Morgan Stanley Tactical Value’s trust in Kobalt is a testament to our platform and leadership in the music industry. We are proud to form this unique partnership.”

“Morgan Stanley Tactical Value has profound respect for songwriters and the immense value of their art,” said Cameron Smalls, managing director, Morgan Stanley Tactical Value. “We are thrilled to partner with the leading creator-first publisher that is a pioneer in maximizing royalty collections for songwriters and rightsholders. Together with Kobalt’s infrastructure and deep commitment to bettering the music industry, we are excited about our partnership and the opportunities ahead.”

Morgan Stanley’s Tactical Value Fund invests select wealth management clients’ money in niche alternative assets, like the Chinese autonomous mobile robots company Geek+ and Dataminr, an artificial intelligence company founded by JKBX’s Sam Hendel. The fund is private equity-like–Blackstone and Goldman Sachs also both have funds of this sort–but unlike private equity or hedge funds this Morgan Stanley fund tends to make longer-term, more complex investments in companies and things that are hard to liquidate fast.

The $700 from Morgan Stanley ranks among the largest pools of Wall Street money dedicated to invest in music IP. Last year, Primary Wave received $1.7 billion from the Canadian investment company Brookfield Asset Management, and in 2021, KKR gave BMG $1 billion to invest in music copyrights.

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