When Scott Cohen helped launch music rights investment platform JKBX for retail investors earlier this year, he did so because of one question: “Why should the only people allowed to invest in music artists as an asset class be the large private firms?”
That’s how the JKBX CEO, who was appointed by founders Sam Handel and John Chapman of private equity firm Dundee Partners, put it to Financial Planning.
JKBX hit the market in March as a platform where individuals can purchase shares in the streaming royalties of specific hit songs from artists including Beyoncé, Taylor Swift and Ed Sheeran. The platform has attracted thousands of retail investors, offering
“Imagine somebody puts this in their 401(k), and the thing that’s paying them in their retirement is also the important music in their life,” said Cohen, former head of innovation at Warner Music Group who has spent his entire career in the music industry. “Because music — it’s great that it’s an asset class that generates money, but we have to be honest, it’s a lot more than that.”
Launching JKBX took nearly two years of planning, including getting regulatory approvals from the SEC and launching a high-tech platform comparable to competitors that have emerged in the past five years.
“We went down that really challenging path of saying these are securities. We’re sure of it, and to give confidence to the consumer, this is what we’re going to do,” Cohen said about the decision to get SEC approval to register the royalties as securities for sale before ever launching. “It was a long, painful road, but it’s the right thing to do.”
More alternatives go mainstream
Over the two years that JKBX was building toward launch, demand for alternative investments was surging in both direct platforms and alt funds for institutional investors, private equity groups and the like.
A late 2023 Cerulli report on alternative investments projected that direct platforms offering alt investments will control about $21 trillion in investor assets by 2028, up from $11 trillion in 2022. More recently, a July 25 Cerulli report found that 53% of surveyed institutional investors said the specialization in a specific asset class of investment stood among a top priority for them.
“Alternative investments in general have been on a good growth streak for decades. I think what happened in 2022 in particular is that, because equities and fixed-income markets dropped at the same time, you had advisors become a little bit more interested it,” said Daniil Shapiro,
director of product development at Cerulli Associates. “So that has really created a lot of interest in alternative investments.”
However, Shapiro added that most of the interest in alternatives is driven by platforms or funds directly available to advisors, rather than retail investors, which can pose greater challenges in terms of fees involved and generating enough individual investors to have viable scale.
Still, investors are looking for more options in private companies as fewer businesses are going public and the stock markets wavered in recent years. The tech boom and developments in AI have also driven both interest from investors in finding the alts supporting this sector as well as the new tech that’s created the direct-to-investor platforms for alternative investments.
“One area where we’re very interested in is the picks-and-shovels approach to artificial intelligence,” such as the new data centers, energy infrastructure and cybersecurity needed to support AI, said Jacob Miller, co-founder of Opto Investments, a private market investment platform for RIAs. “We’re very interested in cybersecurity.”
Miller said Opto is also looking at developments for space like manufacturing in zero gravity, though it’s still too early of an exploration for large investor groups.
“There’s some pretty interesting companies thinking about how we leverage the uniqueness of that environment to make processes more efficient, less pollution,” he said. “The space economy is interesting to think about. But we’re still a little bit early.”
In recent years, advisor platforms including CAIS have taken off with different alternative investment options, as well as direct retail investment platforms like Republic, which offers shares in crypto, real estate, art and, more recently, a stake in European football club
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‘Alts alts’ and a crowded alternative space
Cohen is well aware of the increased competition for open alternative investment platforms and in the music rights space. He noted the “Bowie bond” from the late 1990s, when asset-backed securities were sold as collateral to the royalty streams of David Bowie songs.
“This is not a new idea,” he said. “I fall firmly in the camp of the second mouse gets the cheese.”
Miller also cautioned to be mindful of what appears as a high yield for the new direct-to-consumer platforms that he calls “alternatives alternatives” because, essentially, the initial hype might be driving some of the yield, which isn’t sustainable over the long term. It can also be highly taxable, he added.
“It should eventually be competitive down with other assets. That’s how I think about a lot of these ‘alts alts,'” he said. “And it’s not even necessarily that it’s a bad idea for an individual investor, as long as they’re diversified enough. But you do have to believe that you’re going to do better than in the market over time — you should be able to identify that fundamental reason.”