26 October 2016
David Bowie pioneered in the securitization of future earnings. Photo: Bloomberg
David Bowie pioneered in the securitization of future earnings. Photo: Bloomberg

David Bowie and financial innovation

It’s awkward to write about music in financial pages. But for British rock star David Bowie, it’s worth it.

He is not only a music legend, but also an international cultural icon for generations.

Bowie passed away Sunday in his home in New York City after a bout with cancer. He was 69.

Bowie, while known for his achievements in music and fashion, is also a pioneer in what we now call fintech.

Right, I’m talking about Bowie Bonds and the securitization concept behind the bonds.

In 1997, the year Hong Kong was handed back to China, Bowie became the first artist to securitize his future earnings in what has come to be known as Bowie Bonds.

He partnered with Wharton-educated banker David Pullman to issue US$55 million of bonds that securitized future earnings from his 300 songs.

Bowie Bonds were granted an investment grade and welcomed by investors.

Several artists followed suit and issued their own bonds. They included Rod Stewart and James Brown.

Today, securitization is not a common financial tool. Some even blame it for the 2008 financial crisis because while it diversifies the risk across regions, the risk also becomes easier to spill over to markets other than its origin.

Madame Tussauds, the Fédération Internationale de Football Association – all tried using the concept to “monetize” their future income from tickets, games and shows.

About a decade ago, the Hong Kong government also issued bonds backed by future earnings from public tunnels and bridges.

Bowie was first and foremost an artist, not a financial specialist. However, he got expert advice from his commercial manager David Pullman.

An insider who was familiar with the deal said Bowie’s original plan was to sell the intellectual property rights to his songs as a package, but Pullman managed to persuade him to go with the securitization plan.

Although securitization was not his original idea, Bowie foresaw the downtrend of the music industry at a time when the internet had just emerged.

In Bowie’s opinion, nothing can stop the music industry from falling. It was useless to deny the truth.

Isn’t that what happened to the music industry, nearly 20 years after he made the prediction?

This article appeared in the Hong Kong Economic Journal on Jan. 12.

Translation by Myssie You

[Chinese version 中文版]

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Columnist at the Hong Kong Economic Journal

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