Strategy: To purchase, develop and exploit music publishing rights.
Issues
Diversification: The company is two year-old, and has a single trading strategy, although it may add media lending in the future.
Management
Positives
Team: The directors have a strong track record in the film and music industries, and an extensive network of contacts.
Issues
Track record: Although the team has experience of music publishing, this is a recent strategy for Sovereign.
Nuts & bolts
Governance: The company board will have no independent directors.
Diversification: To date, the portfolio has 1,631 copyrights. While these will have a wide range of revenue generation capability, this suggests good diversification in due course.
Valuation: There will be a third-party valuer, and trades will take place at audited NAV, plus fees.
Fees
Annual fees: Stated annual fees total 1.25% p.a. plus VAT. With no directors’ fees, additional company costs should be limited. Overall, costs are at the lower end of the sector.
Other fees: A 2% entry fee and 1% on exit; no performance fee.
Risks
Target returns: The target return is 3% p.a. Modelling and returns to date would suggest that, once invested, the company has a good chance of meeting or exceeding that target. This is unusual within the sector.
Investment risk: In common with most products in the non-AIM Business Relief (BR) sector, Sovereign targets a lower return than the yield on the underlying assets. The fee and expected cost structure keep this gap reasonable.
