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"Every industry in the world has been subject to improved efficiency. The music industry is the last," comments Tom Bywater, director of Britain's first music fund, and he has a point. The fall-out from Terra Firma's recent takeover of EMI shows that the music business doesn't cope with cost savings very well - probably because it never had to. But it does now. Cheap online distribution has put paid to blockbuster CD sales and outrageous diva demands - and paved the way for the launch of the Power Amp Music fund.
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This enterprise investment scheme (EIS) aims to build a portfolio of 20-30 established and emerging music artistes. The fund is fronted by music mogul Jazz Summers - the man behind The Verve and Wham - who has already signed indie band Mancini for Power Amp. Funds are raised against artistes' total future earnings, with individual artistes managed as separate businesses holding their own rights.
So, ultimately, the investment is in people, rather than assets or companies. And that may offer more comfort than expected. True, there's what the industry calls 'Pete Doherty risk' - outrageous and unhealthy lifestyles leading to a fall from grace, lower music sales and premature curtailment of royalty income. But such human risk is totally separate from market risk. Musicians aren't going to take more drugs because the stock market's falling. So Power Amp offers investors an opportunity to diversify risk.
And it can be highly profitable, too. Just look at Lisbon-based Football Players Funds Management's gain on its initial £450,000 investment in a 16-year old Cristiano Ronaldo in 2001. Ronaldo was sold to Manchester United two years later for £12.2m, and is probably worth over £30m now.
Also, as an EIS, investors enjoy 20 per cent income-tax relief and can defer capital gains tax on profits on any investments made in the past three years or the coming 12 months. (More on the attractions of EIS here)
The £10m fund is targeting a total return of 2.5 times investment, or 150 per cent profit, but the minimum investment is £10,000 with further multiples of £10,000. Structural change in the music industry, plus a strong management team, add comfort to an investment that's already attractive due to its independence from the stock market.
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-IC-1.9.0c-prod - 15/05/2009 11:00:33 - stuart.turner
