Film financing: Hedge funds say it’s a wrap, but should they?
Hedge funds and banks are backing out of film financing deals because of liquidity issues.
Investing in studios’ slates of films had become big business for hedge funds and banks over 2005 to 2008 with the two side partnering up to create vehicles. Studios, strapped for cash and keen to offload some risk of flops in return for shares in DVD and TV sales profits, had turned to Wall Street to help them. Deals were put together whereby hedge funds and banks invested alongside the studio in seven to 25 films to be made in the future. About $15 billion is estimated to have been invested in slates of films over the three-year period ending 2008. Merrill Lynch, Credit Suisse, Deutsche Bank, Goldman Sachs, Citigroup and JPMorgan all arranged co-financing deals with studios raising money from hedge funds and private equity firms. Hedge funds such as Dune Capital and Clark Investments also created co-financing vehicles.
Last year, though, the banks started backing out of film financing, with some, such as Citi, pulling out altogether. Gordon Clark of the Movie Portfolio Fund says he is not surprised. A former CFO of a bank, Clark says he knows all too well that Wall Street and films do not always go well together.