Lessons Learned From Bowie Bonds

The passing of the innovative pop-rock legend David Bowie has shined new light on his financial savvy, specifically his “Bowie bonds.”

Bowie Bonds
David Bowie, 1947-2016

In the aftermath of the financial crisis of 2008, the investing community became painfully aware of the irresponsible and often reckless use of packaged securities, particularly that of bundled subprime mortgages.
But many investors may not be aware that David Bowie was one of the pioneers of bundling assets for the purpose of selling debt, in this case Bowie bonds.

How Bowie Bonds Were Created

By the early 1990s, David Bowie was a multi-platinum selling musical artist and had released 25 albums, which include such iconic hits as “Space Oddity,” “Rebel Rebel,” “Fame,” “Under Pressure” and “Let’s Dance.”
But like many musical artists in the 20th century, Bowie did not participate in much of his early financial success due to a bad deal with a manager.
Here is a brief history of events that led up to the creation and success of Bowie bonds, according to BBC News:

  • In the 1970s, Bowie realized that he did not own all of the rights to his music. His manager, Tony DeFries, owned up to 50%.
  • Knowing all of his hard work through the years did not completely belong to him had a significant and negative psychological impact on Bowie.
  • In the mid-1990s, Bowie and his financial managers came up with the idea of generating cash from his extensive catalog of music with asset-backed securities.
  • In 1997, Bowie bonds were created. The securities were bought by Prudential Financial for $55 million and promised to repay the new creditors at 7.9% for a period of 10 years.
  • Bowie used part of the $55 million to buy out his former manager.

David Bowie’s net worth at his death was estimated to be $135 million. Unlike some of the more notorious asset-backed securities of the 2008 financial crisis, Bowie bonds proved to be a success for Bowie, his creditors, and now his surviving wife and children.

Bowie Bonds in Hindsight

Smart investors can do well by investing in bonds, if they do their homework and if the market and surrounding economic conditions provide some support.
Of course hindsight always makes us smarter but a 7.9% payout for 10 years, backed by a reliable asset, is an outstanding risk/reward premium. And in the decade after the issuance of Bowie bonds in 1997, stocks would see a few great years followed by one of the worst bear markets in history — the bursting of the technology bubble.
And in today’s low-yield environment, investors would warmly welcome high yields on bundled assets, at least those like Bowie’s, that can potentially have a brighter future than some of the distressed junk bonds paying those yields now.
To end our story on Bowie bonds, and to end the storied career of David Bowie, I can think of no better way to celebrate than to make a small investment in the new David Bowie album, “Blackstar,” available on CD and vinyl.
Kent Thune is the owner of an investment advisory firm in Hilton Head Island, S.C. Under no circumstances does this information represent a recommendation to buy or sell securities.

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