Investing in film as an uncorrelated asset class opportunity for wealthy investors and hedge funds

The term uncorrelated asset classes covers a range of potential investments, including venture capital, real estate, private equity and commodities, but also alternative investment strategies.

But in today’s economy of public stock market crashes, hedge fund defaults and non-existent real estate plays, a company believes that investing in film records, including theatrical distribution, offers a high-return alternative investment that can be used with tax breaks and a variety of revenue streams, including theater, DVD, video on demand, cable and overseas markets.

As an uncorrelated asset class, films and film financing outperform all uncorrelated asset classes in the world, if you look at the more than $ 6 billion invested in film financing transactions over the past 3 years, IRR across the spectrum for both studios and independents are sustainable. global economic downturns in other industries.

When defense contractor Honeywell, New York hedge fund Elliot Associates and Dune Capital invested more than a total of $ 1 billion in several different film funds, many pension funds, private banks, hedge fund managers, equity groups and high net worth investors and family offices began to follow their example of entering the film business.

Investors from Wall Street to Silicon Valley to the Middle East to Russia park their money in Hollywood.

Anil Ambani, Larry Ellison of Oracle, Paul Allen of Microsoft, Stephen Rails, Fred Smith of Federal Express, Norman Waite, co-founder of Gateway Computers, Jeff Scol of Ebay, Mark Turtle of Money Store, Roger Marino of EMC Corp, Sidney Kimmel of Jones Apparel Group, owner of the Minnesota twins Bill Polad; Real estate developers Tom Rosenberg and Bob Jari, as well as financiers Sheikh Walid Al Ibrahim, Michelle Litvak and Philip Anschutz, are behind the funding of many films, ranging from box office hits to Oscars.

Institutional investors and hedge funds investing in films include Elliot Associate, Stark, Columbus Nova, Bain, Honeywell and others.

Uncorrelated investment strategies can be used by investors to offset or counterbalance the risk of one or more investments in a traditional portfolio of stocks and bonds falling in value. To do this, investors typically invest between 5% and 20% of their total investment portfolio in alternative investments to protect the rest of the portfolio from downside risk.

Among the spectrum of asset classes targeted at high net worth individuals, institutional investors, pension funds or private banks, alternative investments are becoming popular, offering greater diversification of investors’ portfolios. The benefits of such diversification have been demonstrated by Harry Max Markovic (1990, Nobel Prize in Economics) in Modern Portfolio Theory. He proved mathematically that an investor can reduce portfolio risks simply by holding instruments that are not perfectly correlated – a correlation coefficient is not equal to one. By having a diversified portfolio, investors must be able to reduce their exposure to individual assets.

If investors are attracted by alternative investments in demand for alpha, this is because the allocation of alternative investments offers advantages over traditional asset classes and diversification of the EUR portfolio, although it involves a certain level of risk.

As investors become more concerned about their risk-adjusted returns, especially in bear market environments, interest in alternative investment strategies is gaining momentum.

By investing in alternative investments, a portfolio manager or investor aims to achieve efficiency in the relationship between securities. An uncorrelated asset class is held independently of other securities constituting a portfolio. Such investment instruments allow investors to hedge the risk of asset loss and avoid any snowball effects. One of the main advantages of alternative investment strategies lies in the fact that they minimize the decreasing risk.

When trained in the proper structuring of leverage financing, which may also include tax incentives from the US and international to minimize risk, many private bankers, public investment funds, high net worth investors, family offices and retirement plans they realize that they are not betting on a film in the hope of winning a film festival. When a company wants to finance 10, 20, 40, 50, 75 films, there is more than just an increase in revenue from each one, but a final exit strategy after 5-7 years, which can bring a 300-400% return on investment capital.

Movies, entertainment, the media, and Hollywood in general seem to be thriving and immune to economic problems. If you look at theatrical receipts and the increase in DVDs of recent films, including “Millionaire from a Fool” or “Twilight”, which had zero movie stars, the return on investment in these and many other films exceeds the return on investment and income of car manufacturers, real estate, shares, mutual funds, etc. First of all, because a well-made film is not a local product that is sold only once and sold once, but a global product that has revenue potential from more than 50 countries and media, including theater, cable, television, satellite, airline, DVD and the huge Video on Demand explosion.

While some private equity firms may disagree with the idea that Hollywood is safe, this state was built on industries with blue chips and for retail investors, Wall Street and real estate were the way to go. So when retail investors, as well as institutional investors, move from investing in bricks and mortar to the film business, the main factor is “why”? “

Some U.S. investors and C corporations are seeking either a strict 100% deduction of their investment under the IRS, section 181, or simply being in a portfolio of unrelated investment opportunities. Overseas investors simply want a high-yielding uncorrelated asset class that has a long-term appreciation like our hybrid movie list and 100% control over American theatrical distribution.

And for smaller retail investors, not including affluent families or ultra-high net worth investors, the bridge between film financing, film production, distribution and technology is coming together so that investors can see that their investment brings an immediate return on monetization. government tax credits as part of the capital flow, up in a number of films against investing in one picture, possible benefits of Section 181, and participation in job creation and stimulating the economy, as each film production creates 50-100 jobs.