Investing in movies as an uncorrelated asset class opportunity for wealthy investors and hedge funds
The term uncorrelated asset classes covers a wide range of potential investments, including venture capital, real estate, private equity, and commodities, but also alternative investment strategies.
But in today’s economy of collapsed public equity markets, defaulted hedge funds, and non-existent real estate, one company believes that investing in movie slate, including theatrical distribution, offers a high-yield alternative investment that can be leveraged with tax benefits. and multiple sources. of revenues including theater, DVD, video-on-demand, cable, and foreign markets.
As an uncorrelated asset class, films and film finance has outperformed all uncorrelated asset classes in the world when you look at the more than $ 6 billion invested in film finance deals in the last 3 years, IRR across the spectrum of both studios and independents are resistant to global economic downturns in other industries.
When defense contractor Honeywell, New York Hedge Fund Elliot Associates, and Dune Capital invested more than a combined total of more than $ 1 billion in several different movie funds, many pension funds, private banks, hedge fund managers, Private equity groups and wealth investors and family offices began to do the same to enter the movie business.
Investors from Wall Street to Silicon Valley, from the Middle East to Russia, have been depositing their money in Hollywood.
Anil Ambani, Oracle’s Larry Ellison, Microsoft’s Paul Allen, Steven Rales, Federal Express’s Fred Smith, Norman Waitt, Gateway Computers co-founder, eBay’s Jeff Skoll, The Money Store’s Marc Turtletaub, EMC Corp’s Roger Marino, Sidney Kimmel of the Jones Apparel Group, owner of the Minnesota Twins, Bill Pohlad; Real estate developers Tom Rosenberg and Bob Yari, and financiers Sheikh Waleed Al Ibrahim, Michel Litvak and Philip Anschutz are behind the financing of many films ranging from blockbusters to Academy Award winners.
Institutional investors and hedge funds that invest in movies include Elliot Associate, Stark, Columbus Nova, Bain, Honeywell, and others.
Investors can use uncorrelated investment strategies to neutralize or counteract the risk that one or more of the investments in a traditional portfolio of stocks and bonds will lose value. To do this, investors typically place between 5% and 20% of their total investment portfolio in alternative investments to protect the remainder of the portfolio from downside risk.
Among the spectrum of asset classes targeted by high net worth individuals, institutional investors, pension funds or private banks, alternative investments are becoming popular and offer greater diversification to investor portfolios. The benefits of such diversification have been demonstrated by Harry Max Markowitz (1990, Nobel Prize in Economics) in Modern Portfolio Theory. It mathematically demonstrated that an investor can reduce portfolio risks simply by holding instruments that are not perfectly correlated, a correlation coefficient that is not equal to one. By maintaining a diversified portfolio, investors should be able to reduce their exposure to individual asset risk.
If investors are attracted to alternative investments in their search for alpha, it is because allocation to alternative investments offers advantages compared to traditional asset classes and diversification to a â € œEURâ € portfolio, although it does involve a certain level of risk.
As investors have become more concerned about their risk-adjusted returns, especially in bear market environments, interest in alternative investment strategies gained momentum.
By investing in alternative investments, a portfolio manager or individual investor aims to get a return on equity ratios. An uncorrelated asset class behaves independently of other securities that make up a portfolio. Such investment vehicles allow investors to protect themselves from the risk of an asset losing value and avoid any snowballing effects. One of the main benefits of alternative investment strategies lies in the fact that they minimize downside risk.
When informed about the proper structuring of leveraged film financing, which may also include US and international tax incentives to minimize risk, many private bankers, sovereign wealth funds, high-net-worth investors, family offices, and pension plans understand that they are not. betting on a movie hoping to win a film festival. When a company seeks to finance 10, 20, 40, 50, 75 films, there is more than an advantage in the income of each one, but a final exit strategy after 5-7 years that can generate a return of 300-400% on invested capital.
Movies, entertainment, the media, and Hollywood in general seem to be thriving and immune to financial woes. If you look at the box office revenue and DVD growth of recent movies, such as “Slumdog Millionaire” or “Twilight,” that had no movie stars, the ROI of these and many other movies exceeds the ROI and revenue of the automakers, real estate, stocks, mutual funds, etc. Mainly because a well-made movie is not a local product that is bought and sold once, but a global one that has revenue potential in more than 50 countries and media, including theater, cable, television, satellite, airline, DVD and the big bang. from Video on Demand.
While some private equity firms may resist the idea that Hollywood is safe, this country was built on the foundation of blue-chip industries and for retail investors, Wall Street and Real Estate was the way to go. Well, when retail investors, as well as institutional investors, are moving from physical investments to the movie business, the underlying factor is ‘why’? “
Some US investors and C corporations seek a strict 100% deduction on their investment under IRS Section 181 or simply being in a portfolio of uncorrelated investment opportunities. Foreign investors simply want a high-yielding uncorrelated asset class that appreciates long-term, like our Hybrid Movies list, and 100% control over US film distribution.
And for smaller retail investors, not including wealthy families or ultra-high net worth investors, the bridge between film financing, film production, distribution and technology is converging for investors to see their investment generate a immediate return on monetization of state tax credits as part of the stock flow, an advantage in several movies vs. investing in a single film, potential Section 181 benefits, as well as participating in job creation and stimulating the economy, as each film production generates between 50 and 100 jobs.