Lehman Brothers' London-based head of European equity derivatives sales Francois Pham-Quang has left the firm to open a fund specializing in the securitization of music industry assets, according to BW sister publication Derivatives Week. The fund, called The Music Fund, will securitize the future earnings of several types of music assets, such as catalogues of published songs. The concept is similar to The Pullman Group's securitization of royalty streams, colloquially know as Bowie bonds. However, the financial technology used will look more like mortgage-backed securities, according to Pham-Quang. He predicted the fund would start trading when it has raised $150 million. It has seed capital of some $30 million.
The fund will mostly invest in music publishing--specifically catalogues of songs written by artists that generate royalty payments when those songs are played or re-recorded--and will also look at buying record labels. Pham-Quang has always been interested in music and when he was at Lehman invested in small music labels, including the record labels of R&B singers India Arie and Sunshine Anderson.
The fund will team up with an investment bank to structure and distribute the securitization once it has gathered enough assets. He added that the transaction could resemble a collateralized debt obligation with rated tranches, but the exact structure has not yet been determined. The fund would look to either do one large transaction per year or several smaller deals, but will not securitize assets until it has at least $350-400 million in collateral.
David Pullman, chairman and ceo of the The Pullman Group in New York, said he welcomes competitors in the market, adding that so far attempts to copy the Bowie bonds model have been unsuccessful. "Talking about it and doing it are two different things," he said.