Ex-Citi private banker launches innovative music fund
A tax-efficient investment fund could point to the future for the music industry.
With the music industry in turmoil following the private equity-backed buyout of record company EMI, a former private banker has teamed up with some of the UK's top music producers to launch an investment scheme he believes offers a glimpse of the future.
Tom Bywater, who quit his job as a discretionary portfolio manager at Citigroup two years ago, aims to raise £10m for the Power Amp Music Fund, structured as a UK Enterprise Investment Scheme. The money will be used to invest in between 20 and 30 acts, produce and release their recordings, and promote tours and merchandising.
Unlike traditional recording contracts signed by the top labels, artists will not get big advance payments but will enjoy a much greater share of revenues, said Bywater.
The music management for Power Amp is being headed by Jazz Summers and Tim Parry, the duo behind artists including The Verve, Snow Patrol, Badly Drawn Boy and The Klaxons. Bywater recently added Malcolm Dunbar, previously head of A&R at independent label Sanctuary, to the team with a particular responsibility for signing established acts and so-called "heritage" artists.
Two-thirds of Power Amps acts will be recognised performers with solid record sales and live fan bases. "These will be the low risk, low return investments which provide us with a solid income," said Bywater.
The rest of the fund's investments will go on new acts, where the risk is much higher and therefore Power Amp takes a bigger chunk of the revenues. "This is where we expect to get the performance kicker," said Bywater. While it is generally accepted in the music industry that only one in 10 new acts will be profitable, Bywater said the success rate of Summers and Parry was between 30% and 40%.
As an EIS, investors will get upfront tax relief and capital gains tax exemption, which means they are effectively exposed for 48p in the pound. However, Bywater emphasized that unlike some previous music funds Power Amp was not set up to operate as a tax shelter.
"In one fund I came across, there was almost zero chance of an investor making significant returns or the artists getting paid more than they would out of a traditional deal. Our fund has an excellent business model first, and some good tax relief second," he said.
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