October 2006
Hedge funds and film finance: Show me the money
Hedge funds are the new financiers to the movie industry, attracted by the potential returns on diverse portfolios of movies especially from DVD sales. Hollywood has a bad reputation for parting star-struck investors from their cash. So the hedge fund managers will need to stay sharp and structure their investments carefully. Helen Avery reports.
| Film finance was often a high-risk/high-return investment proposition with a reputation for burning investors. Now, though, hedge fund managers are finding ways to mitigate risk and penetrate opaque film industry accounting practices. |
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“You can run into a large, well-known studio that has a bad run of films, but generally speaking they will produce enough films to make returns”
Frank Yablans, Promenade Pictures |
FRANK YABLANS IS the Warren Buffett of Hollywood. Former president of Paramount Pictures and former chairman of MGM, the 71-year-old has more than 300 films under his belt, including blockbusters such as The Godfather, Serpico, Paper Moon and Murder on the Orient Express. Back in the early 1970s when Paramount made the original version of The Longest Yard, Yablans remembers, third-party financing came from tax-shelter deals. Now Yablans is running his own film production and distribution company, Promenade Pictures. With investment advisory firm Bluebay Capital, Promenade is seeking finance from the most recent investor base to hit Tinseltown – hedge funds. This sophisticated investor base has poured an estimated $4 billion into Hollywood in the past three years in investment vehicles that, like Yablans’s operation, are attempting to create a high-returning asset class with less risk than traditional, rather speculative investment in the film industry.
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