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Hedge Fund's Route to 30% Fees: Cash Advances to Hip-Hop Artists

Tuesday, April 2, 2019
Miles Weiss | Bloomberg
Diane Standaert

Stephen Marley comes from music royalty. Sean Garrett has written and produced smash hits for Beyoncé, Usher and Ciara.

Even so, when they and hundreds of lesser-known names in the world of hip-hop and rap needed cash, one Wall Street figure emerged as an unlikely source behind the financing: hedge-fund titan Jamie Dinan.

In a few short years, Sound Royalties, a West Palm Beach firm started within a unit of Dinan’s York Capital Management, has become ubiquitous in the music industry. Proudly billing itself as “artist friendly,” it offers cash advances to musicians, who often have to tide themselves over between royalty checks that can take months to arrive. A big selling point is that unlike a loan, it’s quick and easy. No credit checks or hassling with banks. Just your money, fast.

There’s just one catch. While Sound Royalties doesn’t disclose how much it earns from cash advances, its fees are usually far higher than the “industry-leading” 4 percent rate it advertises online, according to court filings and interviews with ex-employees and industry insiders. Those who have reviewed the contracts say they’re hard for non-financial types to understand, and some artists can end up paying rates of 30 percent or more. And because they’re structured as advances instead of loans, state usury laws don’t apply.