How Michigan’s Treasury Has Benefited from Paul McCartney, Ariana Grande Song Owner

No stranger to bold investment moves, such as loading up on hotels, Michigan’s pension plans are getting returns from tunes.

Michigan’s Treasury has a majority stake in Concord Music, a record label that owns the rights to nearly 400,000 songs. Thanks to royalties from airplay, streams, and sales, the $25 million investment made in 2010 is now worth $1.8 billion.

How’s that for an alternative station?

Unlike virtually any other investment, the idea is that music is not something that will slow down in the face of recession. True, although ticket sales to concerts and album sales might suffer during a down period, one guiding principle remains at the organization.

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“We believe music is somewhat less dependent on the economy than many other industries and products, as well as business cycles,” Jon Braeutigam, Michigan’s chief investment officer, told CIO. “When a recession happens, people stop buying larger items; however, we believe they will continue to listen to music.”

Regardless of the economic situation, each time a Concord-owned song plays, Michigan’s pensions get a cut—and they’ll get it no matter what’s going on in the markets.

The state will also keep harvesting money from Concord’s artists for decades, as copyrights expire 70 years after musicians’ death. Some of the label’s big names include post-Beatles Paul McCartney, ZZ Top’s Billy Gibbons, Creedence Clearwater Revival, Santana, George Benson, and Miles Davis. It also owns the rights to a variety of musicals from composers like Richard Rodgers, Oscar Hammerstein, and Andrew Lloyd Webber.

It even gets a cut from pop singer Ariana Grande, who’s single “7 Rings” is a reimagining of Rodgers and Hammerstein’s “My Favorite Things” from The Sound of Music.

“The initial investment was made when there was uncertainty in the music industry as consumers were changing the way they were listening to music, going from compact discs to digital forms,” said Braeutigam. “Today, whenever you hear a song being played on a smart home device, streaming service, commercial, or some other format, music owners are getting paid the royalties which are due them.”

Despite owning a bulk of Concord, Michigan does not get involved in the company’s affairs. That’s done by Barings Alternative Investments, which the state has partnered with. Barings employs music businesses veterans.

“This is just one piece of our diverse investment portfolio,” the CIO said.

Michigan also owns stakes in several hit television shows, such as “The Big Bang Theory” and “Friends.”

The Treasury’s investment bureau keeps watch over the financial moves made by the state’s four retirement funds: the Michigan Public School Employee Retirement System, the Michigan Judges Retirement System, the Michigan State Police Retirement System, and the Michigan State Employees’ Retirement System. The funds collectively have about $70 billion in assets under management and serve 530,000 members, according to the Treasury’s most recent annual report.

Funding status differs from plan to plan, averaging to about 72% funded. The most well-off is the 97.8%-funded judge program. The remaining three funds’ ratios fall between the low and mid 60s.

Neither Concord Music nor Barings could be reached for comment.

Tags: Ariana Grande, Concord Music, Michigan, Music, Pension

So will the Federal Reserve actually lower short-term interest rates to please the pols? Maybe not. There’s little evidence that the Fed wants to take this step, which some are urging, including at 1600 Pennsylvania Avenue.

In fact, the Fed may actually be inclined to raise them, at some point, once it sees that economic growth is likely to continue. The Fed’s board of governors and regional presidents, as of the March meeting, are foreseeing slightly higher rates ahead. They expected no action this year and a median benchmark rate near 2.6% next year and in 2021, with a longer-term outlook of 2.8%.

The futures market believes that by year-end, odds are 62.2% that the Fed will stand pat, with 31.2% betting that rates will be pushed down by a quarter-point, according to the CME Group. Now, the Fed’s target range for the short-term benchmark federal funds rate is 2.25% to 2.5%, with the actual rate at the moment resting at 2.5%.

The minutes of the Fed’s March conclave indicated that an assessment of risks had led the Fed to believe that “the outlook would likely warrant leaving the target range unchanged for the remainder of the year.” Indeed, Fed Chairman Jerome Powell recently told Congress that they were in “no rush” to take action on rates.

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Boston Fed President Eric Rosengarten said last month that the body would need “several meetings” to get a clear enough read on the economy before deciding to do anything with interest rates. “There are a number of near-term risks that hopefully will be clarified by summertime,” he said.

Such inertia is not welcome at the White House. President Donald Trump has launched a Twitter campaign to urge the Fed to lower short rates and not phase out its bond-buying program, aimed at lowering longer rates. He claims that the Fed’s rate-hiking campaign has retarded the economy’s growth.

Since 2015, the Fed has been boosting rates, with four increases last year. The central bank lifted them from the near-zero level set during the financial crisis.

Trump has tapped two loyalists to the Fed’s board of governors: conservative pundit Stephen Moore and pizza magnate Herman Cain, who ran for the 2012 GOP presidential nomination. Both support lower rates. Several GOP senators oppose Cain, though, so his prospects at the Fed are dim.

Tags: Donald Trump, Federal Reserve, Interest Rates, Jerome Powell